Crude oil: What’s next after China inspired jump?

Crude oil priced in dollars is still around 20% below its 2008 all-time high, while in local currency, oil is at a record high for countries accounting for more than a third of the world’s oil demand according to this Bloomberg Opinion piece. With the cost of diesel and gasoline already at record levels in dollars, the impact on non-dollar-based consumers has become even more expensive.

The above charts show the margin, priced in dollars per barrel, refineries can make from producing gasoline and diesel from either WTI in the US or Brent in Europe. With the gasoline margin trading at a factor 3 to 4 above the long-term average, consumers are already paying prices that reflect crude at or even above $150. However, two years of lockdowns has not only given people's savings a boost, it has also increased the desire for mobility this upcoming summer holiday period. With that in mind, and together with increased demand for cooling in the Middle East, demand for fuel is likely to remain strong during the coming months, thereby further aggravating an already tight market outlook.

Later today, the EIA will release its weekly crude and fuel stock report, and even the prospect for an across-the-board stock build, if API’s data is confirmed, the market has still managed to trade higher ahead of the release.

WTI crude oil recorded the second highest closing price since 2008 on Tuesday, and as long it can maintain support around $116.50 per barrel, the risk of higher prices exist.

The main reason why the report is unlikely to offer much relief to a tight fuel market can be seen below with inventories of gasoline and distillate (diesel) at their lowest seasonal level in years. In addition, the market will also look for any change in demand for motor gasoline, currently at levels close to the five-year average.