Crude Oil Prices Consolidate as Buyers Remain Cautious Amid Concerns Over OPEC+ Compliance
March 1, 2022
Crude oil and refined product futures were consolidating today, following last week’s surge and a relatively calm weekend on the geopolitical front. The lack of any increase in hostilities in the Middle East, as well as Ukraine’s war with Russia, has provided some relief to the market. However, concerns over OPEC+ compliance with production cuts are dissuading buyers from aggressively chasing crude oil benchmarks.
At midday, the NYMEX March West Texas Intermediate (WTI) contract remained relatively unchanged, with prices holding close to Friday’s settlement of $76.85 per barrel. Similarly, Brent crude saw a lack of enthusiasm, with the April contract down 50 cents to $81.69 per barrel.
Refined products, on the other hand, are providing refiners with substantial margins, reducing their risk in buying crude oil at prices above $80 per barrel. Gasoline and distillate prices are currently in the range of $100 to $117 per barrel, making the purchase of crude less risky for crude processors.
However, despite the strong performance of distillate futures, the NYMEX March ULSD contract was down 5.77 cents per gallon to $2.9065 per gallon. Diesel is still fetching over $45 per barrel above WTI, reminiscent of the windfall profits witnessed during the early months of the Ukraine War. Profit-taking is evident in the market today, with prices in U.S. spot markets down 5-6 cents per gallon.
Gasoline prices are expected to rise in the coming weeks as the market enters the typical March runway, characterized by refinery downtime and the transition to summer blends. The NYMEX March RBOB contract was up by a marginal 0.24 cents to $2.3419 per gallon. With approximately 5 million barrels per day of global refining capacity offline for maintenance, concerns over excessive winter gasoline supplies are fading.
In addition, market sources anticipate a drop in demand, primarily due to the recent atmospheric rivers that led to reduced consumption in western states last week.
Soybean oil’s premium to heating oil futures has weakened to about 60 cents per gallon. This narrowing spread is putting downward pressure on Renewable Identification Number (RIN) credits. Biomass-based diesel D4 RIN credits were down to 53.75 cents each, while ethanol-related D6 RINs were at 52.75 cents each at midday.
Overall, as the market consolidates and buyers remain cautious, the focus now turns to the Energy Information Administration’s report on Wednesday, which is expected to provide further insights into the state of the industry.
Analyst comment
Neutral news.
As an analyst, the market is expected to continue consolidating as buyers remain cautious due to concerns over OPEC+ compliance. Refiners are benefiting from substantial margins in refined products, reducing their risk in buying crude oil above $80 per barrel. Gasoline prices are expected to rise in the coming weeks due to refinery downtime and the transition to summer blends. Additionally, a drop in demand is anticipated due to reduced consumption caused by recent weather events. The Energy Information Administration’s report on Wednesday will provide further insights into the industry.
