Oil is starting to flow into the U.S. Strategic Petroleum Reserve which may avert a U.S. oil storage overflow and substantially reduce the risk that oil prices in the U.S. will again crash below zero. The Energy Information Administration, in their weekly petroleum status report, showed oil going into the reserve for the second week in a row, adding 1.7 million barrels last week. It was one of the reasons that the increase in commercial crude oil inventories came in at a less than expected 4.6 million barrels from the previous week.
The Trump Administration used some ingenuity to help oil companies take advantage of the contango in the oil market and give them a potential market for their oil. As many as nine companies that included Exxon Mobil (NYSE:XOM), Chevron (NYSE:CVX) and Alon, have agreed to rent and place as much as 23 million barrels of oil in the reserves according to Reuters. This a win -win for the country. The government is going to make money on the rent and the oil companies are going to kill it on the contango.
This comes as oil demand around the globe is coming back. Oil prices leapt on reports that Saudi Arabia had actually raised prices for oil in Europe. They had been offering steep discounts to secure market share but an increase in price suggest the Saudis believe demand destruction has bottomed out in Europe.
In the U.S. gasoline demand is coming back leaping 804.000 barrel a day from last week The trend on gas demand will hopefully continue to rise as the U.S. opens up and gets back to work. The EIA reported that, "overall gas supply fell by a more than expected 3.2 million barrels and ready to use ‘gasoline’ stocks fell 1.6 million barrels". The recovery in gasoline demand is a sign of hope that the worst is over and America can get ready for the biggest economic comeback in the history of the world. Do not bet against America.
The jobless claims numbers according to the Wall Street Journal suggest that the job losses and layoffs have bottomed and with a little luck will start to recover. The Journal reported that, “Weekly jobless claims—though still numbering in the millions, well above the prior weekly record of 695,000, set in 1982—suggest the wave of unemployment caused by the pandemic could crest as soon as this month. Still, the layoffs that already occurred are likely to cause the unemployment rate, at a 50-year low as recently as February, to jump to a record high with April’s number, due out Friday. The figures go back to 1948.”
Yet the distillate numbers weighed on market sentiment. The EIA reported that distillate fuel inventories increased by 9.5 million barrels last week and are about 12% above the five-year average for this time of year. Reuters reported that diesel demand has not dropped as much as gasoline consumption because of farming and trucking use, but it is still 20% lower than the same time a year ago, the EIA said. Refiners have been producing more diesel, even mixing jet fuel back into processing.
So demand growth hopes are back with more productroleum exporter for the twelve-week in a row.
So oil, the economy and the jobs market are all in the bottoming process. While this will not be a straight arrow up, we strongly believe the worst is over. That does not seek to diminish the real pain that many Americans are going through. Yet the sign of hope and the American Spirit will get us through this. Stay strong! But fill up your gas tank because its not going to stay this cheap for very long.
On the geopolitical front, Reuters reported that, “President Donald Trump on Wednesday vetoed legislation passed by both houses of Congress to limit a president’s ability to wage war against Iran, as Trump wages a campaign of maximum pressure against the Islamic Republic. “This was a very insulting resolution, introduced by Democrats as part of a strategy to win an election on November 3 by dividing the Republican Party,” Trump said in a statement released by the White House. “The few Republicans who voted for it played right into their hands.”