Written Commentary
CRUDE OIL
Crude oil prices are sharply lower today in the wake of the tariff announcements, as the trade seems most concerned about the effect a trade war would have on global demand. The fact that oil and product imports were exempted from the tariffs, including Mexico and Canada, did little to assuage those concerns. US crude imports from Canada reached their highest since January 3 last week in apparent anticipation of the tariffs, which supported a larger than expected increase in US crude stocks. OPEC+ will apparently stay with their plans to gradually increase output for now. The EIA report yesterday was bearish against expectations for crude oil, less so for distillates, and neutral for gasoline. Implied gasoline usage was down from the previous week and a year ago. Crude oil stocks (and to a lesser extent distillate stocks) are below year ago and five-year average levels, while gasoline stocks are above.
EIA details
- Crude oil stocks +6.2 million barrels last week versus -2.1 million expected.
- Crude stocks at Cushing, Oklahoma +2.4 million barrels last week versus -0.8 million the previous week.
- Gasoline stocks -1.6 million barrels vs -1.7 million expected.
- Distillate stocks +0.3 million barrels vs -1.0 million expected.
- Refineries -1.0% to 86.0% versus +0.7% to 87.4% expected.
- Crude oil imports 6.466 million barrels per day vs 6.195 million the previous week.
- Crude exports 3.881 million bpd vs 4.609 million the previous week.
- Net imports 2.585 million bpd vs 1.586 million the previous week.
- Implied gasoline demand 8.495 million bpd vs 8.643 million the previous week and 9.236 million a year ago.
NATURAL GAS
May Natural Gas is higher this morning, as the market is less threatened by a trade war. Nations that have been hit hard by the reciprocal tariffs may view commitments to buy US LNG as a way to negotiate a lower tariff rate for themselves. Vietnam and India have already indicated that they would be willing to boost LNG imports. For the weekly EIA storage report today, traders are looking for a net injection of 25 bcf last week (range +18 to +39). The average change for the week is -20 bcf. As of last week, storage was down 24% from a year ago and 6.4% below the five-year average. Yesterday, LSEG said average gas output in the Lower 48 U.S. states fell to 104.4 billion cubic feet per day (bcfd) so far in April, down from a record 106.2 bcfd in March. Average gas demand in the Lower 48, including exports, was forecast to go from 103.3 bcfd this week to 105.4 next week. The average amount of gas flowing to the eight big operating U.S. LNG export plants fell to 14.9 bcfd so far in April, down from a record 15.8 bcfd in March. The 6-10 day forecast below normal temperatures in the eastern half of the US, with above normal in the west. This may slow the increase in storage temporarily.
PRODUCT MARKETS
Like crude oil, RBOB and ULSD prices collapsed overnight in the wake of the tariff announcements that rang alarm bells over demand. There may also be some relief that Canada and Mexico were exempted from this latest round, as that would allow heavy crude supply to still reach US refiners. Reuters reported that a US oil and biofuel coalition meeting with the EPA officials pushed for biomass diesel mandates of 5.5-5.75 billion gallons, which would be up from the current 3.35 billion that the biofuel industry says is far below production capacity. The president has promised support of the biofuel industry, and this is viewed as the first test of that. This theoretically could lower usage of products refined from crude oil.
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