Crude Rises 25% as US Considers Oil Support

Crude oil prices closed with 25% gains yesterday – which under normal circumstances would have caused mixed jubilance and panic for traders and unequivocal terror for fuel buyers. But the $5 pick-up from Wednesday’s $20 close hardly seems a cause of concern.  Oil prices remain at incredibly low levels.

US policymakers are reportedly making plans for an intervention, but many wonder how effective such interventions could be. Washington is mulling tariffs on Russia and Saudi Arabia to keep their cheap crude out of the US, supporting domestic producers. Other considerations include steeper sanctions on Russia and a diplomatic nudge for Saudi Arabia to return to supply cuts. However, with the current demand impact from coronavirus estimated to be -8 million barrels per day (MMbpd) this month and -6.5 MMbpd in April, supply cuts can only go so far. Many fear that severe oversupplies will overwhelm local storage options, which could push crude and fuel prices down to equivalent with production costs (or even lower).

In physical fuel market news, the Colonial Pipeline, which supplies nearly all the fuel to the Southeast United States, is planning to cut pipeline flow rates by 20% in light of reduced demand. The 5,500 mile pipeline connecting refiners in Houston to consumers as far north as Linden, NJ expects to begin reducing the flow on Tuesday, March 24.

OPIS data reports that retail gasoline volume is down 2.4% across the US, with further reductions expected in the coming weeks. Gasoline prices in the New York Harbor region slipped below Gulf Coast prices, an unusual inversion caused by rapidly declining demand in NY. Diesel demand has held steady thus far, but many expect to see diesel demand fall as COVID-19 continues spreading in the US.

Crude oil prices falling after yesterday’s rally. WTI crude is currently trading at $23.73, down $1.49 from yesterday’s closing price. The spread between WTI and Brent crude blends has widened after narrowing to below $2/bbl at some points this week. The spread is now above $4/bbl, showing that American producers continue to face more severe price pressure than European producers.

Fuel prices are slightly down this morning as well. Diesel, which rose above $1/gal yesterday, is currently trading at $1.0388, down 0.3 cents. Gasoline prices are trading at $0.6754, down 1.0 cents.