The diesel crisis continues even as gasoline markets are slumping. OPEC+ barely moved to increase its output goal, keeping global markets tight. And the US and Iran are heading back to the negotiation table, following the US tightening sanctions. Let’s unpack the day’s news.
Yesterday, the EIA published its weekly report which showed a headline 4.5 million barrel (MMbbl) increase for crude stocks – suggesting improving oil market supply conditions, at least in the US. The fuel picture, however, was mixed. Diesel inventories fell by 2.4 million barrels, keeping them well outside the seasonal range, while gasoline inventories posted a meager 0.2 MMbbl build. The key story with gasoline is not inventories, though… it’s demand.
Gasoline demand fell below 2020 levels for the second time this year, and brought the total 4-week average of gasoline demand (the most accurate measure of demand) below the comparable period for 2020. Drivers are hitting the road even less than they did during COVID lockdowns, suggesting high prices and poor economics are effectively keeping drivers inside.
Yesterday, OPEC+ announced it would raise its oil output goal by 100,000 barrels per day, a move widely seen as insufficient. Following President Biden’s trip to Saudi Arabia, commentators expected that the group might raise output higher to bring balance to the market. Instead, the group raised production by a miniscule amount that many have called a snub against President Biden. Any hike, though, would have been functionally symbolic – OPEC+ is collectively producing a couple million barrels per day less than quotas allow. The problem is technical capacity, not the production quota on paper, so the group will continue struggling to meet global demand.
Talks between the US and Iran will resume this week in Vienna, with both sides hoping to revive the 2015 nuclear deal. However, it remains to be seen if any progress can be made. Earlier this week, the US announced sanctions on six companies in China and the UAE for their involvement selling Iranian oil. The sanctions prevent any US companies from working with those entities, and also threatens sanctions against other countries that choose to interact with them. Iranian oil has been finding its way into the global market, and some countries have been turning a blind eye due to the current supply situation, but the US’s action make it clear that Iran must agree to a renewed nuclear deal before selling its oil on the global market.