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After the Energy Information Administration reported a surprising 2.1-million-barrel build in gasoline inventories for the week to June 9, traders rushed to offload their bets on gasoline futures, causing a price drop that saw the spread between the front-month Nymex RBOB and WTI narrow from US$19 per barrel at the start of June to US$15.44 a barrel.
S&P Platts noted that analysts it had polled ahead of the release of the weekly report had expected a draw in gasoline inventories of 600,000 barrels. This expectation likely aggravated the sentiment that caused the selloff.
This is the second week in a row of rising gasoline inventories, and the timing had much to do with the market reaction to the reports. Driving season is ahead, and as analyst John Kiduff noted, “Refiners are going to still crank out supply because they're hoping that when schools close people are going to hit the road. That's wishful thinking, but it's what they're going to play for.”
But last year’s driving season was a disappointment in terms of gasoline demand, and there are chances of a repeat this summer. Implied demand for the most popular fuel in America stood at 9.293 million bpd over the first two weeks of June, down from 9.763 million bpd in the previous two weeks. A year earlier, average daily demand was 9.665 million barrels.
Meanwhile, crude oil production is rising. The year-to-date increase for the Lower 48 states has now reached 599,000 bpd, and according to the International Energy Agency, by the end of the year, the U.S. in total will be producing 920,000 bpd more than it did at the end of 2016.
Crude oil prices are now at levels last seen in November 2016, with Brent crude hovering a hair below US$47, and West Texas Intermediate at US$44 and change.
By Irina Slav for Oilprice.com
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Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.