Oil prices are rising again on signs that oil producers and refiners are getting squeezed, leading to less production of oil and products.
OPEC output fell by 280,000 bpd in February to 32.37 million bpd, according to a Reuters survey based on shipping data. Information from sources at oil companies slipped and an ominous warning from Mexico’s Pemex is putting billions of dollars of oil production projects on hold. Mexico's oil producer recorded $32 billion in 2015 losses. “Pemex is facing short-term financial difficulties,” José González Anaya said on a conference call. This comes after a year when oil production averaged 2.267m barrels per day, 6.7% down from 2014.
Even Russia is feeling the pain as Russia's President Vladimir Putin approved plans on Monday to raise domestic tax rates on gas and diesel by nearly 25%. This comes against a backdrop of U.S. shale producers taking out falling output giving the market a sense that we may have hit bottom.
On top of that, refiners are cutting runs. Zero Hedge reported that, “CVR Refining LP is among the companies that have scaled back. The company said recently that it reduced runs at its 70,000-barrels-a-day refinery in Wynnewood, Okla., by as much as 10,000 barrels a day.
“It doesn’t make sense to process something when you’re not making anything on it,” Chief Executive Jack Lipinski said during a Feb. 18 earnings call. HollyFrontier Corp. said Wednesday that it has trimmed production at refineries in Kansas and New Mexico due to lower margins.
PBF Energy Inc. Chief Executive Tom Nimbley said during a conference call on Feb. 11 that the industry “turned the dials to make more gasoline” in the last quarter of 2015 and overshot demand. “The gasoline is not going to the consumer,” he said. “It’s going into a tank.”
We have seen those cuts increase gas prices. AAA's Daily Fuel Gauge Report reported that gas prices arerising at the fastest pace since early November. Yesterday they reported that the national average price of gas has increased for seven consecutive days for the first time since early November, up 3 cents a gallon, though drivers continue to enjoy relatively low prices at the pump. Gas prices have climbed by four cents per gallon versus one week ago and are likely to continue to rise.
They say Hawaii ($2.56) is the nation’s most expensive market for retail gasoline, and regional neighbors California ($2.39), Alaska ($2.20), and Washington ($2.03) are the only states with averages above $2 per gallon. Pump prices in the majority of states (31) are at or below the $1.75 per gallon and consumers in Arizona ($1.52), Tennessee ($1.53) and South Carolina ($1.53) are paying the nation’s lowest averages at the pump.
One area where production is rising is Iran. Bloomberg reported that Iranian output rose by 140,000 barrels a day to three million, the most since July 2012 when sanctions against the nation were strengthened. The Islamic republic is seeking to regain market share after sanctions were removed last month upon completion of an agreement limiting its nuclear program.
On the macro picture oil is shaking off weak manufacturing and non-manufacturing data out of China. Yet signs from China they are ready to act to add stimulus is giving us support. On top of that Federal Reserve Governor Bill Dudley says they are downside risks to the economy and that may prevent the Federal Reserve from raising interest rates. That would be supportive to oil. .
We also get the API report tonight. Bloomberg News is reporting that they expect crude supply to rise by 2.75 million barrels this week according to survey. They look for a drop in refinery runs of 0.4% and gas supply to fall by 1.5 million barrels and distillates by 1.5 million barrels as well. Dow Jones reported that Data provider Genscape Inc. said Monday that crude oil supplies at the key storage hub of Cushing, Okla., rose to a record high in the week ended Friday, according to a person who viewed the data.
Up to 50 oil tankers are waiting to unload cargo in the port of Rotterdam, the highest number since 2009. An expected drop in Nigerian output has also pushed prices higher.
Macro Bill Dudley says they are downside risks that may prevent the Federal Reserve from raising rates.