The Wild Wednesday and a Tipsy Thursday

Yesterday was a prime example of how volatile the market can be. Despite a massive inventory draw, crude prices plummeted yesterday, falling over 5% to end the session at $70.38. This morning, prices are attempting to recoup some of yesterday’s losses, but remain in $70 territory. Crude is currently trading at $70.74, up a mere 9 cents.

Fuel prices followed crudes downward spiral yesterday. Diesel prices lost over 12 cents yesterday, and gasoline fall nearly 11 cents. This morning, diesel is trading marginally higher at $2.1063, a tiny half cent gain. Gasoline is also making small upward movement this morning trading at $2.0721. Prices have fallen back to prices seen 2-weeks ago erasing all signs of the recent rally.

The drastic sell-off in the market yesterday was a result of the combination of these bearish factors:

• Libyan Production – Last week Libyan oil production dropped a whopping 85%, amounting to roughly 850,000 bpd worth a total of $67 million. The drop was a result of the state-run Nation Oil Corporation’s force majeure on all 4 of its eastern oil ports, after they were taken over by militant groups loyal to the Libyan National Army. In a surprising turn of events yesterday, the LNA gave control back to NOC and all 4 ports are back to full production. An additional port, producing 70,000 bpd, was reopened after a 2 week shutdown as a result of this resolution.
• Iran Sanction Waivers – The U.S. has taken a tough stance on Iranian oil sanctions, suggesting exemptions would not be granted to anyone after November 1. However, late Tuesday, Secretary of State Mike Pompeo suggested the U.S. is considering granting waivers to some countries importing Iranian crude.
• Trump’s Tariffs – As the trade war continues, the market’s fear of Chinese tariffs being placed on oil continues to grow. There are several VLCC tankers carrying a large amount of crude oil (possibly 16 MMbbls) making their way to China. Should China decide to impose a 25% tariff on U.S. oil, it’s likely the cargo could be reoffered in the Asian spot market, meaning 16 MMbbls could be looking for a new home.
• Syncrude Returns – Suncor Energy announced its Syncrude oil sands project in Alberta will return to full production this September bringing 360,000 bpd back online. They also reported one of their coker drums, producing 150,000 bpd, will return at the end of this month.
• CME Exchange Technical Issues – The CME exchange experienced some technical issues yesterday preventing some traders from accessing the market. Although this was not the cause of the major sell-off, it probably played a small role in the drastic decline as some traders may not have been able to enter the market.

2-Year Record Crude Draw

The EIA released its weekly petroleum market data yesterday, which included yet another huge crude draw. However, among so many other bearish factors, the draw had little to no impact on prices. Crude drew by 12.6 MMbbls, the largest drop since 2016, while products built by 3.4 MMbbls combined.