OPEC+ hits the refinery wall
Fuel traders and refiners are becoming more pessimistic about the outlook for the global economy and transportation for the rest of this year, even as the crude producers in OPEC+ try to push oil prices higher.
OPEC+ is anxious to see higher crude prices as soon as possible but its ambition is likely to be thwarted in the short term by the renewed softness in fuel consumption.
Price premiums for gasoline and diesel over crude have been flat or falling for almost four weeks since June 23 amid growing anxiety about a resurgence in the coronavirus and a new round of lockdowns.
Futures for U.S. gasoline delivered in September fell yesterday to less than $8 per barrel over Brent for delivery in the same month, down from more than $11 in late June.
Gasoline margins have been trending lower since June 23, after rebounding strongly over the previous three months as the major economies emerged from lockdown.
Diesel margins have been steadier throughout the pandemic but the modest uptrend has fizzled out in recent weeks .
Earlier expectations of a quick and complete V-shaped recovery are giving way to fears about an extended period of below-trend output and employment.
U.S. gasoline consumption has been broadly flat for the last three weeks as the emergence from lockdown has run into a new wave of coronavirus cases.
Even before the latest bout of weakness, refiners in the United States had been forced to restrain crude processing to allow excess fuel inventories inherited from the lockdown to be absorbed.
The renewed weakness in gasoline and diesel prices is signalling to refiners that they may need to trim processing rates to avoid a new build up in stocks.
Refiners are trapped between OPEC+, which wants to drain excess crude inventories as quickly as possible and drive oil prices higher, and sluggish consumption of gasoline and diesel.
Benchmark Brent futures prices and calendar spreads have also been essentially flat over the last four weeks as the crude market has run into a refinery wall.
Brent prices, calendar spreads and gasoline margins started to soften around June 20, when the number of confirmed coronavirus cases in the United States rose again.
Until the crisis has been brought under control and/or the transportation system resumes its return towards normal, oil prices will struggle to rise sustainably.