The rally in oil has started to fade with the market in overbought territory and little in the way of a fresh catalyst to keep the upward momentum going. ICE Brent settled a little more than 1.6% lower on the day – the largest daily decline in almost a month, leading to Brent closing just below US$86/bbl. The market has recouped some of these losses in early morning trading today. The Fed’s decision to leave policy rates unchanged at its meeting yesterday was no surprise. And while the Fed maintained a forecast for three cuts this year, it lowered its forecast from four to three cuts for 2025. The prospect of rates staying higher for longer should provide some headwinds to risk assets, including oil. That said, looking at broader price action (gold, equities, USD and treasuries) following yesterday’s meeting, the market appears to be more focused on what the Fed may do this year.
The EIA’s weekly inventory report contained little in the way of surprises, showing US commercial crude oil inventories falling by 1.95m barrels over the week, which was similar to what the API reported the day before. While refiners increased utilisation rates by 1pp over the week, the draw was predominantly driven by stronger crude exports, which grew by 1.73m b/d WoW to 4.88m b/d. This left US net exports of crude and products at 4.05m b/d over the week – the highest level since November last year and only the second time that net exports have crossed the 4m b/d barrier.
For refined products, distillate stocks were little changed, increasing by just 624k barrels. However, gasoline inventories fell by 3.31m barrels, which is the seventh consecutive week of decline, leaving US gasoline inventories at just under 231m barrels – 2.1% below the 5-year average. The fall in US gasoline inventories in recent weeks has boosted gasoline, and the RBOB crack is now trading above US$30/bbl, up from around US$15/bbl at the beginning of the year. Gasoline cracks will remain well supported as we head into the summer driving season.
BP’s Whiting refinery has ramped up operations to nearly maximum rates following an outage after a power loss in February. It is believed that the refinery is operating near its nameplate capacity of around 435k b/d. Canadian heavy crude is a key feedstock for the refinery and its return should provide some support to the WCS differential, which has already strengthened considerably since mid-February.
US LNG exporter, Freeport LNG, said that it will increase LNG production following ongoing repairs that are scheduled to be completed by early May. This maintenance is estimated to increase the facility’s capacity to 16.5mt/year, up from the current capacity of 15mt/year. The three-train plant has been undergoing maintenance since late January due to damage from freezing weather conditions earlier in the year. Feedgas to the terminal suggests that only one train is currently online.
