Fuel prices crashed once again yesterday, with pharmaceutical officials noting that Omicron will weaken the efficacy rates of existing vaccines. Gasoline prices closed below $2/gal for the first time since April 2021 after dropping 13 cents, while diesel fell 9 cents to multi-month lows. Today brings yet another recovery, with crude up $2/bbl and fuel prices gaining 6-7 cents.
OPEC+ began its two-day meeting to review oil market conditions, deciding how they want to proceed in the future. After cutting over 10 million barrels per day (MMbpd) at the peak of the pandemic, OPEC has been rubberstamping a 0.4 MMbpd supply increase each month, with 3.8 MMbpd left to go. The group’s technical committee is forecasting a severe glut of oil in Q1, ranging from a 2 MMbpd surplus in January to a 3.8 MMbpd surplus in March. Given demand concerns due to the Omicron variant and the release of strategic oil reserves worldwide, it’s quite possible that OPEC+ will choose to maintain current production levels in January rather than increasing them.
In inventory news, the EIA released their weekly report today, confirming the market’s expectations of a moderate crude draw along with rising fuel inventories. The hefty build for diesel and gasoline stocks (2.2 million barrels and 4.0 million barrels, respectively) is good news for tight supply markets, indicating that refiners are beginning to produce more fuel. Inventories remain historically tight for this time of year, so watch the EIA’s report over the next few weeks to see whether they return to normal or trend below the average.