Oil prices hit their highest levels since May 2015 overnight, spurred on by concerns over the deteriorating situations in Iran and Venezuela, and following another large inventory decline reported by the API yesterday.
The industry group was said to show another large crude draw of just under 5 million barrels last week, while gasoline stocks increased by 1.9 million barrels and distillates increase by 4.2 million barrels. The overnight price reaction in futures seems to be following the report with WTI ticking higher while ULSD is off a penny and RBOB is bouncing around either side of flat. The DOE’s weekly report will be out at 10am central.
Trading volumes are light to begin the day, and may remain that way to end the week as the East Coast is taking cover from the major storm system hitting the region today. With another round of extreme cold forecast to follow the storm system today, we may not know until early next week how the PADD 1 refiners along the coast were able to weather the storm. So far there have not been reports of any major disruptions from the cold snap along the Gulf Coast this week.
While the cold-induced spike in heating oil demand has sent ULSD futures into their steepest backwardation in nearly 3 years, the chart below shows that the current 2 cent premium for prompt vs 2nd month contracts pales in comparison to the spreads from 2013-2015. If this storm passes without any major disruption to refineries or the NY Harbor, these spreads may stay relatively soft as total distillate output remains at record highs, and demand stalls on the backside of the system, but if the deadly combination of cold, wind and ice knocks units offline, we could still see a spike like in years past.