By Crude-oil prices have been steadily increasing for the third consecutive day, as ongoing tensions in the Red Sea continue to drive up prices. This is despite a federal report that shows an increase in oil, gasoline, and diesel supplies last week.
The latest inventory data released by the U.S. Energy Information Administration indicates that refined product contracts initially experienced gains but have since leveled off. As of now, they remain essentially flat.
At 11:40 a.m. EST, crude prices demonstrated gains of about $1/bbl. The February contract for West Texas Intermediate exhibited a rise of $1.03, reaching $74.97/bbl in its first session as the front-month position. Meanwhile, the March contract marked an increase of 88cts, reaching $75.09/bbl. These prices are currently about 40cts below session highs.
February Brent crude saw gains of 93cts, reaching $80.16/bbl, while March gains were slightly lower, climbing 74cts to $80.11/bbl.
The ULSD futures faced challenges in staying in positive territory. The January contract exhibited a modest increase of 0.28ct, reaching $2.7196/gal, which is approximately 5cts below its earlier high. On the other hand, the February contract observed a higher rise of 0.6ct, reaching $2.6954/gal. As for RBOB futures, they also experienced a retreat from their session peaks. The January contract saw a decline of 0.12ct, reaching $2.1996/gal, which is about 1.5cts below its previous high. Meanwhile, February prices sank by 0.19ct, reaching $2.2046/gal.
In the midst of recent Houthi attacks on shipping in the Red Sea, energy prices have risen in four out of the last five trading sessions. These attacks have prompted companies to divert vessels onto longer routes around Africa and have led to the establishment of a regional naval task force, headed by the U.S. There are reports suggesting that the U.S. and other nations are considering military action in response to these attacks. Such actions could potentially lead to further disruptions to shipping in the region.
Inventory Data and Refinery Capacity
The recent news regarding U.S. crude inventories has overshadowed the inventory data released by the Energy Information Administration (EIA). According to the EIA report, U.S. crude inventories saw a significant increase of 2.9 million barrels during the week ending Friday. This increase was accompanied by a rise in U.S. production, which reached 13.3 million barrels per day.
In addition to crude inventories, gasoline inventories also experienced an increase of 2.7 million barrels, while distillate supplies saw a growth of 1.5 million barrels. Despite these rises, both gasoline and distillate inventories remain approximately 10% below their seasonal averages.
The rise in product inventories can be attributed to the increased operational capacity of U.S. refineries, which reached 92.4% during the same week. This represents a gain of over two percentage points compared to the previous week.
Demand and Price Patterns
During the week, implied gasoline demand experienced a slight decline but remained robust at 8.75 million barrels per day. On the other hand, distillate demand witnessed a positive growth of around 50,000 barrels per day, reaching 3.82 million barrels per day.
While diesel prices in spot markets across the country closely follow futures prices, gasoline prices show significant deviations in the Group 3 and San Francisco markets. In Group 3, prompt CBOB prices dropped by approximately 2.5 cents per gallon. As a result, discounts to the NYMEX price widened to more than 21 cents per gallon. Conversely, in San Francisco, prices for January-timing CARBOB surged by 14 cents per gallon, leading to premiums of 16 cents over the February RBOB contract.
Conclusion
Reporting: Steve Cronin
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