Gas Prices Are a Silver Lining for Wobbly Economy
“The low price point will probably be here in July and August,” said Kilduff, who says WTI could break $70. He said demand should then pick up in the fall, as diesel demand rises ahead of the holiday season and heating oil demand picks up.
Even the threat of Tropical Storm Debbydisrupting production in the Gulf of Mexico did not help oil prices Monday.
“On the crude side we have plenty of it, and the Gulf of Mexico supplies less and less,” Lipow said. “It’s roughly about 1.4 million barrels a day.”
Refining output had also been an issue when gasoline prices were running higher earlier in the year, and the threat of refinery shutdowns on the East Coast added to concerns.
“They’re a little tight here on the East coast, but overall we’re well supplied. We have plenty coming on with the run rate the way it is,” Kilduff said.
One disappointment has been the Motiva refinery, owned by Royal Dutch Shell and Saudi Aramco. The refinery was expected to have reopened as the largest in the nation this spring, but it is not running at full capacity because of a problem with a caustic pump, Lipow said. That has put a lot of extra Saudi crude, intended for the downed refinery, into the U.S. market.
“Crude oil deliveries in the Gulf of Mexico are roughly 16 percent higher, or close to 30 million barrels — that’s how much inventories have risen since the beginning of the year,” he said.
Denton Cinquegrana, executive editor at OPIS, said the market is signaling lower prices for gasoline into the end of the year.
“You look at the futures markets for October, November, December, January. It is point to sub-$3 gasoline prices,” he said.
“Even with prices falling, there’s a pretty vibrant export market particularly for distillate like diesel that’s going to South America,” he said. The exports are not so great they are impacting U.S. supply.
“Demand is at a point where it’s not that great. If you didn’t have this vibrant export market, the 90 percent we’re running would be closer to 73 or 75 percent because we’d be looking for even more of a glut than we have,” he said.
As for crude, “I do think we’ll get a bounce in July just because this has come off so much so fast. I just don’t think we’re going to see those $100/$105 earlier in the spring prices,” he said.