June trading volatile

Prices gyrate as demand and COVID closures face off with supply constraints

Steve Sutherlin

Petroleum News

It has been difficult to tell which way oil prices are going to move on a given day lately. When a trend begins to develop, it is whipsawed into reverse in short order. The only constant is change.

Uncertainty in markets is driving high volatility, as traders’ focus swings from fears of demand destruction to concern over supply capability.

Alaska North Slope crude fell $1.98 June 29 to close at $116.84 per barrel, while West Texas intermediate fell $1.98 as well - to close at $109.78 and Brent fell $1.72 to close at $116.26.

During the trading session WTI jumped as high as $114.05 before falling back into the close. Over the month of June WTI rose as high as $122.11 on June 8 to a low of $104.22 on June 23.

ANS closed at $112.61 on Wednesday June 22, a week later it was up $4.23 at its close of $116.84 June 29. ANS closed at $127.77 on June 8 and $111.30 on June 23.

The indexes were buffeted June 29 by a report from the U.S. Energy Information Administration showing that motor gasoline inventories rose an unseasonably high 2.6 million barrels for the week ending June 24, perhaps reflecting a hit to demand from consumer price sensitivity. Over the past four weeks, motor gasoline product supplied averaged 8.9 million barrels per day, down by 2.0% from the same period last year.

Commercial crude oil inventories - excluding the Strategic Petroleum Reserve - fell by 2.8 million barrels from the previous week, the EIA said. At 415.6 million barrels, U.S. crude oil inventories are 13% below the five-year average for the time of year.

ANS rose $2.44 June 28 to close at $118.82, as WTI rose $2.19 to close at $111.76 and Brent rose $2.89 to close at $117.98.

ANS was up $2.11 June 27 to close at $116.37, while WTI was up $1.95 to close at $109.57 and Brent increased $1.97 to close at $115.09.

Prices were supported June 27 by a proposal by the Group of Seven leaders to cap prices on Russian crude.

Supply issues also arose.

Libya’s National Oil Corp. said it was on the verge of declaring force majeure on oil exports from key eastern oil terminals as an ongoing political crisis restricts production. Half of Libya's oil production is offline as its two rival governments struggle for power and oil revenues.

Ecuador’s energy ministry said anti-government unrest could hammer oil production there also.

ANS jumped $2.96 June 24 to close at $114.26, as WTI leapt $3.35 to close at $107.62 and Brent popped $3.07 to close at $113.12.

On June 23, ANS fell $1.31 to close at $111.30, WTI fell $1.92 to close at $104.28 and Brent fell $1.69 to close at $110.05.

A ban on exports

Credit Suisse said in a June 21 report that it doesn’t think Biden has the votes in Congress to place the ban, but “in the event he does use his executive powers and evoke National Emergency Act to temporarily ban crude exports, it could actually have an adverse effect.”

The bank said the United States is still dependent on imports, and it imports twice as much oil as it exports.

“If the US were to stop exporting these barrels, it would cause further global shortages in an under supplied crude market,” Credit Suisse said. “Again, this would have a bigger impact in global supply of crude than Russian invasion of Ukraine.”

A ban would cause crude prices to move up significantly and prices of U.S. imported barrels will go up with it, the bank said. While mid-continent refiners will benefit from a wider Brent-WTI spread, overall prices for coastal refiners will go up and might cause gasoline and diesel prices to spike.

“Banning crude exports will also cause U.S. producers to pull back capital leading to production decline in the Lower 48,” the bank said. “This will basically leave the world more dependent on crude from countries like Russia and Iran.”

Oil exports from the U.S. Gulf Coast are set to hit an all-time high of 3.3 million bpd in the second quarter of 2022, as refining capacity outages limit operators’ ability to meet demand and releases from the Strategic Petroleum Reserve boost supply, Rystad Energy said in a June 27 release.

The unintended consequence of federal intervention is that more barrels than ever before are being sold to international buyers, Rystad said.

“Domestic refining capacity in the U.S. remains depressed compared to pre-Covid levels, so it’s no surprise that government intervention to support crude supplies has resulted in an increase in exports of domestically produced light barrels,” said Artem Abramov, Rystad head of shale research. “It means the U.S. is able to support global markets amid the most challenging energy crisis in at least 30 years.”