Oil prices have recovered from recent lows, but in recent weeks have largely been range-bound.
WTI is stuck in a range between say $51-55 per barrel and Brent about $61-64 per barrel as the market awaits for a catalyst to help break the range.
There are several candidates and an argument can be made for the bearish or bullish outcome. The ceasefire on the tariff trade war between the U.S. and China expires soon and a trade deal would be bullish for oil prices, while an escalation of tariffs would be bearish as it would increase concerns about a global economic slowdown. Meanwhile, a roll over would be neutral to bullish as the situation remains the same, but also can be viewed as a trade deal may be at hand.
Meanwhile, OPEC meets in April and by most accounts the group is sticking to its production cuts. Saudi Arabia is being particularly aggressive producing some 200,000 barrels per day less than their current quotes. However, with refinery maintenance taking place in the U.S. and other refineries around the world the production cuts may not necessarily be showing in current storage data.
The trifecta of factors is rounded out by sanctions. The U.S. issued sanctions on Iran in November, but a waiver for several countries helped keep the full breadth of the sanctions to be felt in the market. Originally, expectations were that waivers would be a one-time deal—but with sanctions also placed on Venezuela, whispers of an extension of the waivers could keep a lid on oil prices.
Domestic demand for crude oil is taking a downturn as not only has the traditional maintenance taken some demand out of the market, but bitter cold weather in late January and early February has had an impact on refinery runs. Recently, gross inputs into U.S. refineries was the lowest since refineries were recovering from the aftermath of Hurricane Harvey, according to data from the Energy Information Administration.
If there is a time of year where increased refinery outages can be absorbed it’s the winter as the downtime has not necessarily manifested itself in supplies as inventories of gasoline are comfortable. Total U.S. gasoline inventories are running more than 10 million barrels above the five-year average.
Comfortable supplies not just for gasoline, but also crude oil has kept a lid on retail gas prices. As of mid-February, the U.S. average local gas price stood at $2.27 per gallon and has been shifting in and around the $2.25 per gallon area for much of the month. Meanwhile, current local gas prices are roughly 30 cents cheaper than at this time last year.