Weekly Price Review

After what seems like it would be a positive week, crude prices appear set to post a slight loss for the week. Prices opened Monday morning at $46.68, and are currently $46.54. Prices fluctuated from a low of $45.81 on Tuesday to a high of $47.55 on Thursday, a range of almost $1.75. Compare this to last week’s range of $3/bbl ($43.65 – $46.74) and $3.50 ($43.78 – $47.10) the week before that, and you can see that this week has been relatively calm for markets.

Unlike crude prices, refined products posted solid gains for the week. Diesel prices opened the week at $1.5186, and are currently at 1.5265, a gain of .79 cents. Gasoline prices showed even stronger gains, beginning the week at $1.5625 and currently trading at $1.8534. Refined products have received a boost from robust demand data and large inventory draws this week.

Markets struggled to find a direction early in the week, falling Monday and recouping on Tuesday. Inventories largely determined the direction of the market early this week. The market had expected small draws for crude oil and gasoline and a slight build for diesel. The API report showed a surprise crude build and refined product draws, making trades anxious to see the official data. The EIA’s report of a 4.7 MMbbl draw of crude oil, along with a combined 6.5 MMbbl draw of diesel and gasoline, was strongly positive for prices.

Wednesday’s announcement from the EIA of across-the-board stock draws helped the market establish a concrete path higher, boosting prices by nearly $1 in a matter of hours. As the market cooled down from its enthusiastic response on Wednesday, attention shifted from the stock draws to the fact that we’re still roughly 100 MMbbls above “normal” inventory levels, taking the wind out of market.

The drop in the dollar this week also helped boost prices during the week, though the overall lack of enthusiasm in the market today has caused prices to fall despite the falling dollar. The dollar has fallen 1% this week due to disappointment in Washington’s inability to move forward with its pro-business agenda set by President Trump when he took office.

Ecuador’s announcement earlier this week of their intent to withdraw from the OPEC agreement created a wave of uncertainty regarding future supply/demand imbalance. While Ecuador’s cuts were relatively small (25 kbpd, or the equivalent of the state of Illinois’ oil production), the precedent of a country formally exiting the deal creates a path for other small producers to quit as well. OPEC has always struggled with member nations cheating on their agreements, but this outright defiance could spell trouble. Combine this news with the EIA’s updated forecast that U.S. production will grow 113 kbpd in August, and markets could see a continuous of the supply glut in the near-term.