One Dollar Per Headline
Give me a headline, and I’ll give you a dollar. The debt showdown negotiations dominated the oil market and the perceived progress on the negotiations, or the lack there of, caused oil to move as the headlines were released. It was clear the oil market would forget about supply and demand and instead focus on other issues when Fitch put the US on a downgrade watch. That headline basically pushed the price of oil about a dollar. The market was holding support, but after the headline came out that the inflation component in yesterday‘s second reading on the first quarter GDP was hotter than expected, oil dropped another buck. Then it was the Wall Street Journals’ turn with a report that the Biden administration was dusting off contingency plans if the debt-ceiling deadline passes and that caused roughly another dollar drop in the price of crude. Yet then a headline suggested that progress was being made in debt talks after Biden said that he and the congressional leaders agreed that default is not an option helped oil bounce back about a dollar.
So it is clear today that as our nation prepares to honor and pray for those who as President Abraham Lincoln once said gave, "The last full measure of devotion" to our country, the focus on oil will be inflation data and the perception of progress on the debt ceiling talks as we head into the extended holiday weekend.
We will get a flood of economic data that oil may move on especially if it looks the least bit inflationary. We get at 7.30a central time durable-goods orders and personal income and personal spending. The CE index and the core PCE index at 7:30am will be closely watched and at 9a central we will get consumer sentiment (final) that the Fed will want to see the drop as they try to break the spirit of unemployed Americans because Washington can’t stop spending money.
Yet back to the supply and demand of oil. Things are tighter than they ever have been. Upside price risks abound as inventories are below average and demand continues to defy the skeptics. There are more signs that OPEC, along with Russia, is starting to reduce production. Not only that, but there are also signs that they are laying the groundwork for another cut at their June 4th meeting. Yesterday Deputy Prime Minister Alexander Novak played down the prospect of further OPEC+ production cuts at its meeting in Vienna yet overnight Russia seemed to then leave the door open. I am sure they won’t have a problem if Saudi decides to do a unilateral cut. Russia expects Brent crude prices to rise above $80/b later this year although does not see a need for any further output adjustments from OPEC+ members, Deputy Prime Minister Alexander Novak said Thursday.
Yet then Reuters reported that Russian President Vladimir Putin said on Wednesday that energy prices were approaching "economically justified" levels. The remarks contrasted with comments this week from Saudi Arabian Energy Minister Prince Abdulaziz bin Salman, the de-facto leader of the Organization of Petroleum Exporting Countries (OPEC), warning short sellers to "watch out”. Overnight Russia's Novak left the door open saying that the decision to cut production could be made at the June 5th meeting if necessary. Look out!
Gasoline inventories are near historic lows for this time of year, but the Energy Information Administration (EIA) is reporting that things could be worse than they were a year ago. The EIA says that, “The retail price for regular-grade gasoline in the United States on May 22, the Monday before Memorial Day weekend, averaged $3.53 per gallon (gal), 26% (or $1.24/gal) lower than the inflation-adjusted price a year ago. Memorial Day gasoline prices last year were the highest since 2012. The American Automobile Association (AAA) expects 6% more miles traveled this Memorial Day weekend compared with last year because of lower gasoline prices. Although retail gasoline prices have come down from a year ago, they remain higher than during the period from 2019 through 2021. Thanks Joe Biden.
Yet AAA reports that, “The seasonal surge in gasoline demand leading into the long holiday weekend resulted in the national average for a gallon of gas rising four cents since last week to $3.57. AAA forecasts that Memorial Day road trips will be up 6% over last year, with more than 37 million Americans driving to their destinations. “The rise in demand for gasoline is helping to push pump prices higher for now,” said Andrew Gross, AAA spokesperson. “But the increase is mitigated by the low cost of oil, which is wobbling around in the low $70s per barrel. Pump prices could stabilize or fall once this long weekend is in the rearview mirror.”
According to new data from the Energy Information Administration (EIA), gas demand increased from 8.91 to 9.43 million b/d last week. Rising demand has helped to boost pump prices. Meanwhile, total domestic gasoline stocks decreased by 2 million bbl to 216.3 million bbl. If gas demand grows amid tighter supplies, drivers will likely see pump prices rise. Today’s national average of $3.55 is eight cents less than a month ago and $1.02 less than a year ago.
Intelligence – Russia expects Brent crude prices to rise above $80/b later this year although does not see a need for any further output adjustments from OPEC+ members, Deputy Prime Minister Alexander Novak said Thursday. In comments relayed by the state-run TASS agency from an interview with Izvestiya, Novak said an increase in demand would help lift prices from current levels. "I think that the price will be slightly higher than $80 per barrel, and I hope that the demand will still rise in the summer. A reduction of output by many countries is also going to influence," he said, referencing previously announced production cuts.
Russia announced a reduction of 500,000 bpd earlier this year, followed by a package of OPEC+ cuts of 1.15 million bpd, including 500,000 bpd from Saudi Arabia. However, one of the talking points at the early-June OPEC+ gathering in Vienna is likely to be compliance levels, with Russian crude exports so far showing few signs that the announced cuts have been fully implemented. Novak also added that China's recovery has been more uneven than previously forecast, but he expects that to change.
The Deputy PM also said Russia supplied 32 million mt of oil and petroleum products to India last year and it plans to continue boosting supplies, adding China and India "are our friendly markets".
This year the plan is to redirect 140 million mt to Asia, with around 80 million mt remaining in Western markets.
Everyone enjoy your holiday weekend and also take some time to say a prayer for the men and women who gave all in the name of freedom and to make our country free. God Bless them and God bless their families.
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