Saudi Arabia’s crude production increased by 161,000 barrels a day in May, just below its output quota. OPEC producers are set to meet next week in Vienna to discuss quotas and the market is mixed about what might happen. West Texas crude continues to boom in production with the latest projections indicating that the Permian Basis will become the third largest oil producing region in the world, but the problem is getting the oil to market as pipelines are at capacity. The significant draw in stocks this week was not anticipated so the market reversed after stats to trade higher. Watch for dips to layer in hedges over the coming months.
Refinery utilizations were up 0.3% at 95.7% this week. Imports were down for crude and distillates, but up for gasoline. Apparent demand for products was up this week.
Futures markets were in a free fall today, particularly on refined products and Brent crude.
Long liquidation came into the market early and often, with crude oil falling on talk that an OPEC and non-OPEC production increase was coming at the meeting next week, just the amount and timetable are to be determined. The largest producers in the agreement are pushing for an increase while some members have been against the increase as they have little to no spare capacity to tap into.
Meanwhile, a looming trade war with China has spooked the market. President Trump has given the OK to roughly $50 billion in tariffs on Chinese products.And China has hit back with tariffs of its own on U.S. goods, including chemicals and energy.
The oil sell-off also manifested itself in some unwinding of the long Brent, short WTI play that helped push the differential between the two benchmarks to more than $11/bbl at one point recently. The spread dropped inside of $9/bbl today, and it was the lowest since May 25.
Heavy selling took August Brent as low as $73.12/bbl, a level not seen since May 8, with the contract closing at $73.44/bbl, down $2.50 and the softest settlement since May 2. July and August WTI were also down sharply, but the losses were lighter compared to the rest of the market as the first two contracts were down just over $1.80. July WTI settled at $65.06/bbl and August at $64.85/bbl, with the spread between the two months widening as July expiration approaches.
Refined product losses were even wider than crude oil on an equivalent basis.
Although RBOB may be the contract that is in the midst of a seasonal sell-off, it was the ULSD contract that took the biggest losses today.
July RBOB dropped to a $2.0232/gal settlement, a loss of 6.78cts as the contract has dropped more than a dime over the past two sessions and the resolve of RBOB bulls will be tested early next week. Since peaking in May, RBOB futures are off about 13%, and considering the typical seasonal peak-to- trough, there is another 10% of downside potential for RBOB.
July ULSD futures were off a little more than 7cts at $2.087/gal, taking prices to the lowest levels since mid-April. Over the course of the week, front-month ULSD has dropped by 7.73cts.
The U.S. rotary rig count from Baker Hughes was down 3 at 1,059 for the week of June 15, 2018. It is 126 rigs (13.5%) higher than last year.
The number of rotary rigs drilling for oil was up 1 at 863. There are 116 more rigs targeting oil than last year. Rigs drilling for oil are 81.5 percent of all drilling activity.
Rigs targeting natural gas were down 4 at 194. The number of rigs drilling for gas is 8 higher than last year’s level of 186.
Year-over-year oil exploration in the U.S. is up 15.5 percent. Gas exploration is up 4.3 percent. The weekly average of crude oil spot price is 46.2 percent higher last year and natural gas spot prices are 0.8 percent lower than last year. Daily crude oil and natural gas futures and spot prices are available on our site.
Canadian rig activity was up 27 at 139 for the week of June 15, 2018 and is 20 (12.6%) lower than last year. Rigs targeting oil were up 18 at 87 and are 4 (4.4%) lower than last year. Gas directed rig count at 52 was up 9 and is 16 rigs (23.5%) lower than last year. Canadian drilling falls rapidly in the spring to avoid environmental damage moving drilling equipment during the spring thaw and rainy season. With large weather related seasonal swings, even year-over-year comparisons can lead to incorrect conclusions. Also, Canadians take their holidays more serious than their counterparts in the U.S.