How Much Higher?

This weekly report is an excerpt from our Short-Term Outlook service analysis, which covers a period of eight quarters and provides monthly forecasts for crude oil, natural gas, NGL, refined products, base petrochemicals and biofuels.  Contact John Paisie (+1-832-517-7544 or E-mail) for the detailed analysis or for more information about the Short Term Outlook.


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The price of Brent crude ended the week at $119.43 after closing the previous week at $112.55. The price of WTI ended the week at $115.07 after closing the previous week $110.28.

The increase in oil prices at the end of the week was driven, in part, by the upcoming Memorial holiday weekend in the US, which is accompanied by increased gasoline demand. Interestingly, the latest weekly report from EIA indicates that gasoline demand continues to run below that of last year and significantly below that of 2019. Based on the 4-week average, current gasoline demand is running 573,000 b/d less than for the same period of 2019. In contrast, the US is exporting gasoline at a significantly higher level than in 2019. With respect to the average of the last four weeks, gasoline exports have been running at 877,000 b/d, which compares to 595,000 b/d during the same period in 2019. Additionally, gasoline inventories are now 9.03 million barrels less than for the same period in 2019. Furthermore, refining utilization in the US increased to 93.2% from 91.8%. Utilization rates are especially elevated in the US Gulf Coast and East Coast, where utilization rates are running at around 97%. However, because of the reduction of refining capacity that took place during the throes of COVID-19, crude inputs, based on the 4-week average, are running about 0.690 million b/d less than in 2019.

A significant contributory factor for the lagging gasoline demand in the US is the elevated gasoline prices, which have reached an average of $4.60 for regular gasoline and $5.27 for premium. Another factor is that the strength of the US economy is weakening. The personal savings rate fell to 4.4% in April, which is the lowest rate since September of 2008, during the Great Recession. In comparison, the savings rate was 33.8% in April of 2020, and stayed elevated through the end of 2021. Additionally, wage increases continue to lag the overall inflation rate. Furthermore, the US Dollar Index continued to decline last week, falling to 101.64 from the previous week of 103.03 and from the high of 104.85 that occurred on May 12. The US interest rate on the 10-year bond also declined again for the third consecutive week, and closed last week at 2.745%, which compares to the recent high of 3.128%.  The weakening of the US dollar and the pullback in the interest rates are signs of concerns about the future economic growth and the growing risk of a potential recession in the US.

From the supply-side perspective, the EU still has not been able to reach an agreement on a formal ban of oil imports from Russia. As we highlighted last week, the longer the negotiations go on there is an increased possibility of a ban never being implemented. This possibility was raised on Sunday, by Economy Minister of Germany, who stated that the EU’s unity was starting to crumble. It now appears that the EU will fall back to trying to reach an agreement that is focused on blocking imports delivered via ship, while leaving the imports via pipelines unimpeded. Meanwhile Russia and China continue to increase imports from Russia.

Last week, we suggested that the oil price in the near-term is likely to be driven mainly by the strength of oil demand. And that if the growth in oil demand holds up as we are currently forecasting, the price of Brent crude would drift upwards to around $120.00. With the price movement of last week, the price of Brent crude has nearly reached the projected level.

Looking forward, we do not think oil prices will move significantly higher over the next few months, in part, because we are not expecting any major deterioration in the supply situation. Additionally, while China is expected to lift the two-month long lockdown of Shanghai on June 1, we are expecting that global demand growth will remain moderate.

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