Oil prices ticked higher this week as US gasoline demand recovered, with the EIA’s Wednesday market report showing demand climbing above 9 million barrels per day. Moreover, the report showed a steep draw from gasoline inventories, though diesel and crude stocks rose during the same period. Overall, oil fundamentals haven’t changed – there’s still a structural deficit of oil supplies. But rising gasoline demand did quell concerns of a recession, causing prices to trend higher.
European diesel inventories have been particularly prominent this week. With fall weather just a month away, several European countries are below typical inventory levels. Adding to concerns, restocking has been hindered by low water levels on the Rhine, a key channel for tankers to deliver fuel inland. Water levels have fallen so far that oil tankers have had to lighten their loads, carrying less oil to markets like Germany and Austria. Europe plans to ween off Russian fuel by February 2023, so now is a critical time to stockpile fuel to prepare for the winter. If shipments continue being reduced by logistics hassles, we could see a more severe spike during the winter.
The IEA’s report yesterday added to the bullishness, noting that fuel switching caused by high natural gas prices and widespread heat waves has significantly increased oil demand. In addition, the agency reduced its forecast for North American supply even as it increased its estimate of Russian exports. The big picture is that oil markets remain tight, and Europe’s looming embargo on Russian oil will continue to exacerbate global oil flows.
Prices in Review
Crude prices opened this week at $88.46/bbl. After weeks of losses, the commodity began to tick higher, surpassing $90 by the end of the day. Gains were bolstered on Wednesday thanks to bullish demand data from the EIA, then propelled even higher following the IEA’s report on Thursday. Crude prices opened at $94.09 on Friday, a gain of $5.63 (+6.4%).
Diesel prices opened the week at $3.2065, sinking a bit lower on Monday for rocketing upward on Tuesday, Wednesday, and Thursday. Although the product showed an inventory build for the week, rising crude prices helped carry the product higher. Diesel opened at $3.4891 on Friday, a gain of 28 cents (+8.8%).
Gasoline also began the week low but ended much higher. Opening at $2.85, prices soared on Wednesday to close at $3.07. This morning prices opened at $3.0638, a gain of 21.4 cents (+7.5%).