If the Oil Complex Had a Theme Song This Week it Would be…..

 

“I’m going down, down, down, down!”, the classic Bruce Springsteen song.

On Monday, HO opened up at $1.9772/gal and as of late this morning it has traded near the $1.8600/gal level.   RBOB opened Monday at $1.9945/gal and today is trading near $1.8600/gal.  Both refined products have dropped more than $0.10 this week.  

Factors that have contributed to the sharp drop include:

US Production 

  • Weekly U.S. crude production reached a record high of 10.283 million barrels a day. “Concerns are rising that surging U.S. oil production alone, may cause the global market to shift from a roughly balanced dynamic to a surplus,” said Tyler Richey, co-editor of the Sevens Report. According to EIA data, at the current pace, U.S. oil production will rise to more than 11 million barrels a day by the end of 2018.  

 Crude Builds  

  • U.S. crude stocks rose faster than expected last week, with a build of 3 million barrels compared with estimates of a 2.1 million barrel build. Gasoline had a build of 2.5 million, which is unusual this time of the year during refinery maintenance season.

Trade Wars

  • U.S. plans to impose tariffs of 25 percent on steel imports and 10 percent on imported aluminum have weighed negatively on the equity markets and commodity markets. There is concern that major trade partners China, Europe and Canada might retaliate with trade tariffs which would lead to inflation and trade wars.

Budget conscious distillate consumers may find some value anywhere near the $1.8500/gal in the HO for April delivery.  Especially if the market holds above that level today.  Another support level in HO worth noting, is the 200 day moving average of $1.8239/gal.

 

 

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