Market Close: March 18 Up, Diesel Up $.11 cents

In its monthly report Friday, the International Energy Agency (IEA) said that global oil markets are in an “emergency situation” that could get worse in the next few months as the potential loss of Russian oil exports “cannot be understated.” Strength in the crack spread Friday was supportive for crude prices after the crack spread rose to a 1-week high.  The higher crack spread encourages refiners to boost their crude purchases to refine the crude into gasoline.

Goldman Sachs late Thursday cut its outlook for Chinese oil consumption in Q2 by -700,000 bpd and cut its forecast for Brent crude by $15 a barrel to average $120 a barrel in Q2, citing China’s latest lockdowns to fight the pandemic are expected to hurt demand. Fuel demand in China has slumped as lock down restrictions in major cities have led to a plunge in mobility levels.  More than 50% of flights were canceled at China’s 20-largest airports from March 11-17.

A negative factor for crude was Tuesday’s comments from Russian Foreign Minister Lavrov, who said that sanctions on his country wouldn’t affect the Iranian nuclear deal, which raises some hope that the nuclear deal between Iran and Western nations can be revived.

Signs that crude demand in China, the world’s largest importer of crude oil, is set to decline are bearish for oil prices.  A resurgence of Covid infections in China has prompted the government to put 45 million people under pandemic lockdowns.

Crude prices soared to a 13-1/2 year high last Monday, and gasoline surged to an all-time nearest-futures high on concern about global crude supplies.  The U.S. last Tuesday announced a ban on the imports of Russian energy, including crude oil, liquified natural gas, and coal.  The UK said Tuesday it would phase out all imports of Russian crude by the end of 2022.  However, it will still allow for imports of Russian natural gas.

Rystad Energy said Brent crude could surge to $240 a barrel by summer if Western countries continue to sanction Russian oil exports.  Rystad said that broader sanctions on Russian oil would create a 4.3 million bpd hole that “cannot simply be replaced by other sources of supply.” Researcher Energy Aspects said Tuesday that crude prices need to climb to $150 a barrel or higher for a material slowdown in demand growth. A decline in global crude oil stored on oil tankers worldwide is bullish for crude prices.  Vortexa said Monday that crude oil stored on tankers that have been stationary for at least seven days in the week ended March 11 fell -11% w/w to 85.36 million bbl.

Wednesday’s weekly EIA report showed that (1) U.S. crude oil inventories as of March 11 were -11.8% below the seasonal 5-year average, (2) gasoline inventories were -0.9% below the 5-year average, and (3) distillate inventories were -17.5% below the 5-year average.  U.S. crude oil production in the week ended March 11 was unchanged at 11.6 million bpd, which is -1.5 million bpd (-11.5%) below the Feb-2020 record-high of 13.1 million bpd.

Baker Hughes reported Friday that active U.S. oil rigs in the week ended March 18 fell by -3 rigs to 524, falling back from a 1-3/4 year high of 527 rigs the prior week.  U.S. active oil rigs have risen sharply from the 16-1/2 year low of 172 rigs from Aug-2020, signaling an increase in U.S. crude oil production capacity.