Oil prices defied what could be called a very bearish weekly Energy Information Administration (EIA) status report by putting into context the larger ongoing risks to supply. The Russian war in Ukraine looks like it will increase the risks of major oil product shortages despite Biden’s premature Strategic Petroleum Reserve (SPR) release. Growing pressure on buyers of Russian oil to cut off funding for Putin’s war machine is giving the market underlying support.
The EIA reported that U.S. commercial crude oil inventories increased by 9.4 million barrels from the previous week, supported by a 3.9-million-barrel release from the SPR. At 421.8 million barrels, {{8849|U.S. crcrude oil inventories are still about 13% below the five-year average for this time of year.
Refinery runs disappointed. U.S. crude oil refinery input averaged 15.5 million barrels per day during the week ending April 8, 2022, 424,000 barrels per day less than the previous week’s average. Refineries operated at 90.0% of their operable capacity last week.
The EIA said that total motor gasoline inventories decreased by 3.6 million barrels last week, which put supply about 3% below the five-year average. The semi-finished gasoline and blending components inventories both decreased last week. Distillate fuel inventories decreased by 2.9 million barrels last week and are about 17% below the five-year average.
Demand was also a bit disappointing. The EIA said that total products supplied over the last four-week period averaged 19.9 million barrels a day, up by 1.3% from the same period last year. Over the past four weeks, motor gasoline products supplied averaged 8.6 million barrels a day, down by 2.3% from the same period last year. Distillate fuel product supplied averaged 3.9 million barrels a day over the past four weeks, down by 0.3% from the same period last year. Jet fuel product supplied was up 23.1% compared with the same four-week period last year.
Yet the market did not want to focus on the short-term bearishness but instead looked at the big picture where they knew that these crude supplies were most likely transitory. Growing pressure to get off Russian crude is going to tighten the oil supply when refiners start to ramp up.
Reuters gave the market a bounce after they reported that major global trading houses are planning to reduce crude and fuel purchases from Russia’s state-controlled oil companies as early as May 15, avoiding falling foul of European Union sanctions on Russia. The EU has not imposed a ban on imports of Russian oil in response to Russia’s invasion of Ukraine because some countries, such as Germany, are heavily dependent on Russian oil and do not have the infrastructure in place to swap to alternatives.
The Russian export ban is also impacting U.S. natural gas prices. Not only do we have the possibility of Easter snow in many parts of the country, but we are also seeing the market for U.S. natural gas being extremely strong with record exports as well as products that might not live up to expectations. All are driving concerns about shortages, not just this year but going into next winter, and this means that the natural gas model that is overbought and probably due for correction should be bought on breaks.