Crude: Summer drive time

May 30, 2017 08:08 AM
Daily Energy Market Analysis

The Summer driving season is off and running and oil is struggling to find direction. While we start to move into a period that could see substantial draws in inventory, the trade is focused on shale and what they view as near-term oversupply. Still, disappointed that Organization of the Petroleum Exporting Countries (OPEC) failed to extend production cuts or even enhance them, we are now in a waiting game to see how fast supply starts to dwindle. While shale oil is thought to be the great equalizer, the fact is rig count increases have begun to slow and the production decline rates on shale could signal that production increases may be leveling out. 

Baker Hughes reported that the U.S. oil rig count rose by two to 722 last week, a number that may not be sufficient to offset declines from existing shale wells. We should also see a drop in U.S. crude imports from Saudi Arabia as they cut shipments to the United States. Saudi Arabia is our #2 supplier of oil to the U.S. right behind Canada. Imports from Venezuela are also plummeting as the socialist night predictably collapses. We are asking more out of our shale producers and it is getting harder to keep the upward production trajectory going. 

Gas price and RBOB futures are dipping on the post-holiday letdown. Going into the holiday the EIA said that we average $2.40 per gallon (gal) nationally, up from last year's price of $2.30/gal. Despite the year-over-year increase, 2017 marks the second-lowest price ahead of the Memorial Day weekend since 2009, when the national average price of retail regular gasoline was $2.31/gallon.

Overall demand looks like it should have lived up to pre-holiday predictions and expectations and that should support us as refiners continue to run at near record paces. The demand for U.S. made product is soaring. The Energy Information Administration shows that exports of distillate advanced to a record last month as U.S. refiners were exporting 1.42 million barrels of distillate a day.

The AP reported that U.S. exports of crude oil and petroleum products during January and February, the most current figures available, averaged 6.1 million barrels per day compared to 4.9 million bpd during the same period in 2016, according to the Energy Information Administration. A comparison of the exports from the same period 10 years ago reveals an incredible 334% increase from 1.4 million bpd in 2007 to 2017. 

Exports of finished petroleum products (crude oil that has been refined) continue to be the largest category of petroleum exports with an average 3.2 million bpd recorded during the first two months of 2017. That’s a 16% (450,000 bpd) increase over the same period in 2016 and a 160% (2 million bpd) increase over 10 years ago, according to EIA.

Natural gas is weak as the weather forecast looks mild. According to Baker Hughes the natural gas gas rig count increased by five to 185. With one miscellaneous rig remaining in use, the total rig count rose by seven to 908.

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About the Author

Phil Flynn is a senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. Phil is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets.