Oil Supply Concerns Deepen

CRUDE OIL

May Crude Oil reached its highest level since last Monday overnight, as the trade remained concerned that there oil shipments through Strait of Hormuz will remain restricted for the foreseeable future. Over the weekend President Trump called on China, France, Japan, South Korea, Britain and other countries to join efforts to reopen shipping lanes, but so far the reactions have been far from enthusiastic. Japan and Australia said they were not planning to send navy vessels to the Middle East to escort ships through Strait. The Financial Times reported that European Union foreign ministers would discuss expanding the EU mission that protects shipping against Houthi attacks in the Red Sea to include the Strait of Hormuz. German Foreign Minister Johann Wadephul said he was skeptical about such a move. An estimated 15% of the world’s oil supplies remain trapped inside the Gulf (versus previous estimates of 20%) according to Reuters calculations. Saudi Arabia is scrambling to divert as many as 5 million barrels a day to the Red Sea port of Yanbu. The United Arab Emirates is also diverting some extra crude exports through the Fujairah oil terminal, which lies outside the Strait. However, oil-loading operations were suspended at that port after a drone attack sparked a fire in the emirate’s petroleum industrial zone over the weekend. US strikes on Kharg Island appear to have targeted the military, rather than energy, infrastructure, but they still raise concerns about oil supply.

PRODUCTS

Like crude oil, May RBOB and May ULSD both traded to their highest levels since last Monday’s spike highs overnight and on a relative basis were closer to taking out those highs. Crack spreads continue to widen as product price gains outpace oil gains.

NATURAL GAS

May Natural Gas was lower early Monday despite the rally in the rest of the energy complex, as the US market remains insulated from global prices due to the infrastructure limit on US LNG exports. European gas futures were holding mild gains. The market is down despite a severe winter storm moving through the northern Midwest over this week. The 6-10 and 8-14 day forecasts show a milder pattern emerging in the east and much above normal temps in the west. Reuters reports that there is talk of the potential for a net injection for the week ending March 13. LSEG said average gas output in the lower 48 states had rosin to 109.8 billion cubic feet per day (bcfd) so far in March as of Friday, up from 109.2 bcfd in February and still short of the record 110.6 bcfd from December. Average gas flows to the nine big U.S. liquefied natural gas (LNG) export plants is running around 18.3 bcfd so far in March, down from the record 18.7 bcfd in February. The Baker Hughes rig count showed US natural gas rigs in operation were up 1 rig to 133 last week. This was up from 101 rigs a year ago and above the five-year average of 119.

Interested in more futures markets?  Explore our Market Dashboards here.