Yesterday oil prices reached a 2016 high, with Brent crude climbing above $40/bbl. This was surprising given the inconsistent fundamental data we’ve been seeing. Bullish sentiment pushed refined product prices up even further yesterday after EIA data showed a decline in gasoline inventories by 4.53 million bbls and a draw in distillate stocks of 1.12 million bbls.
Yesterday, WTI crude closed up $1.79/bbl to $38.29, RBOB closed up $0.0827/gal to $1.4705, and HO finished up $0.0327/gal to $1.2327. The market is currently recovering from the (thought to be overdone) rally yesterday, trading down almost 2 cents on HO and falling about $0.0350 on RBOB.
On a bearish note, refineries are currently running at full capacity and putting more units online, while pushing back their maintenance periods to take advantage of the enhanced margins. While in the short-term these low crude prices are advantageous to refiners, cutting maintenance adds a greater risk of unplanned outages. Despite recent gains, analysts believe that for an all-out price recovery to occur, demand would have to grow about 1.2 million b/d in 2016.
Yesterday Kazakhstan indicated that it will not cut production, and further, if oil remains above $40/bbl, the country plans to increase its target output back to 77 million bpd. It is still unclear as to whether a production freeze meeting is in the near future. Yesterday, Russia’s energy ministry spokeswoman said there still has been no date or place set for the speculative meeting, while an Iraqi oil official indicated that oil exporters plan to meet in Moscow on March 20 to discuss the output freeze.