The Phil Flynn Energy Report
On The Road (and Air) Again
On the road again, oil bulls are on the road again, taking oil to where it's never been, I can't wait to get on the road again...
Oil bulls are back, as strong oil demand numbers have put bulls back in the driver's seat. Not only did we see encouraging data from the Energy Information Administration (EIA), but a report from the U.S. Department of Transportation stated that for the first time since the Covid-19 pandemic started, more people are driving on highways than they were a year ago. Highway traffic is up 1% from a year ago and that number reflects what should be improving trends that we’ve seen in private gas demand forecasts, as well as improving trends from the EIA.
And we’re not just on the roads: The EIA showed that jet fuel demand jumped to 1.358 million barrels, up 96 from last week. This reflects reports of rising capacity for airports and airlines. Vaccinated travelers are starting to take advantage of cheaper airfares and hotel deals for spring break, signaling a lot of pent-up travel demand.
This comes as the U.S. supply situation for petroleum is tightening significantly. The EIA reported that U.S. commercial crude oil inventories, excluding those in the Strategic Petroleum Reserve (SPR), decreased by 5.9 million barrels from the previous week. The reason I mention the SPR is because there was a release of over 1 million barrels from SPR. Even with that release, crude supplies have fallen to 492.4 million barrels. U.S. crude oil supplies are just 1% above the 5-year average for this time of year.
If you think that seems tight, take a look at the gasoline supply. The EIA says that total motor gasoline inventories increased by 0.3 million barrels last week, yet are still 2% below the 5-year average for this time of year.
Distillate fuel inventories decreased by 2.1 million barrels last week and are about 4% above the 5-year average for this time of year. We saw a big uptick in demand not only in jet fuel, but also from farmers buying their diesel for planting, assuming they can get in the fields.
Overall, total commercial petroleum inventories decreased by 9.1 million barrels last week, which set the stage for yesterday’s sharp rally and new highs since the corrective breakdown in March. Energy watcher Pat Bourque, who correctly called this week's draw, is calling for even larger draws in the weeks ahead.
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