Oil Prices Moving Higher as Demand Grows

Oil Prices Moving Higher as Demand Grows

Well, can you just give us a sense of what you’re hearing from people in terms of the momentum that we’ve seen over the past few weeks, in particular last week when it comes to higher oil prices and whether people think it’s sustainable? It’s been a strong market and you can really see that in if you look at the price for oil in the near future and oil slightly further out, those spreads have rallied to the highest since April, which shows that the strong call on. All right. Now that inventories are drawing down. And I think people, as Francisco was saying a moment ago, always expected this. We’re moving into the peak months for demand, the cycle driving season. People are moving around the US, they’re moving around elsewhere, they’re flying. And that demand is expected to draw down and is drawing down inventories globally. So we’re hitting a strong period and I think that’s reflected in the flat price of crude, which has come back quite markedly. But as Francisco said, that may be less certainty ahead as we get through this period into the latter part of the year. This is sort of the reason why maybe you’re not seeing that left follow through in the gasoline market in the United States. Actually, you’ve seen declines there to $3.45 a gallon from as high recently as $3.68 back in April. I’m just wondering the significance of that. I mean, this is basically poised to shift to in flat tire. Is it completely divorced at this point based on refineries and supplies of oil and where it’s coming from versus the global market? Well, one of the things we’ve seen globally is that refining margins, the profit that people get from turning crude oil into gasoline and diesel and jet fuel have come off. US refineries are still working very hard, as you would expect, going to the driving season. But in other parts of the world, we’ve seen some spare capacity. In China, for example, margins are not strong and I think that’s reflected and followed through into the global fuel market. And that’s why you haven’t seen gasoline prices react in the same way that we’ve seen crude prices react in the last few weeks. But you what you’re saying, well, is that we are seeing stockpiles move to drawdowns. We’re seeing potentially we’re going to have a driving season that’s going to be big and robust. On top of that, we haven’t even seen hurricane season just yet. What potentially could we see trickle down into the oil market, into gasoline prices? I think the hurricane point is very well made and maybe we haven’t seen any big hurricanes the last few years. But all the indications point to the fact that we could see some very big storms in the Gulf of Mexico, and that can often have a big impact on markets in two ways. It can shut oil producing fields on platforms in the Gulf of Mexico, and it can hit those giant refineries on the Gulf Coast in Louisiana and Texas that are so vital to supplying gasoline to the US market. So that clearly is an extra risk going through the summer months. And one reason why people may not want to be caught short in this market was the US well position. Should that risk come to fruition to withdraw from the SPR after already having done so after not having filled it up? If we get to those risks, can the US mitigate them? Well, the current administration has shown itself very willing to pull the lever. There’s not as much oil as there was in the SPR, but I think there was an interview by the Financial Times with Amos Hochstein of the administration earlier this week where he said that the administration would be willing to pull that lever in the months ahead, that their priority is to keep gasoline prices low for consumers, especially running into the election in November. So I don’t think you can rule it out, Danny, but there is a lot of resilience in the US system before you get there, and I think it would be have to be a very severe disruption before that happened. But at the end of the day, that’s what it said for its strategic reserve to smooth out the disruptions in the market. And if you got a very strong hurricane, which took a lot of oil offline and a lot of refining capacity offline, and we saw prices spike, that option is clearly that that’s on the gasoline side of things. Well, I do wonder what you think about natural gas and some of the other utilities costs, just generally as we do head into a hot spell, a lot of people say it’s always hot, it’s summer. But this is a particularly hot spell. We’re talking about record highs across the Midwest headed to New York City today. It should start. We’re all very excited. Well, do you have a sense of how this will sort of show up in energy markets more broadly and frankly, for consumer bills that have clearly factored into how much money they have left over for retail sales, which we get in about an hour time. One of the trends we’ve seen globally in energy over the last few years is this difference between demand in the summer and the winter has lessened because obviously heating demand in the winter has come off a little bit as well as get warmer. But demand in the summer has gone up because people are just having to run their air conditioning units harder and harder. And we’ll see that as we go into this heat wave that will produce a draw on natural gas. I mean, the US Northeast generates energy in lots of ways, but natural gas is one of them. All down the east coast of the US, it will draw on natural gas and we have seen a rally in natural gas prices. They were extremely low in the spring and people why there was a glut. We saw some producers curtailed production and then this will drive demand higher. So you will perhaps see those prices continue to come up.

Oil held near its highest this month, amid risk-on sentiment in global markets that has helped push crude up recently. Demand for gasoline is also rising as we move into the summer driving season. Bloomberg’s Will Kennedy reports.
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