Published: Sat, July 21, 2018
Business | By Pearl Harrison

Big crude oil margins should boost USA refiner earnings

Big crude oil margins should boost USA refiner earnings

Oil prices rose Thursday, reversing earlier losses, after Saudi Arabia said it does not plan to unnecessarily flood the market with oil.

Benchmark Brent crude oil fell $1.07 to a low of $71.83 a barrel before recovering a little to trade around $71.90 by 1045 GMT.

Meanwhile, determined to prevent the Organization of the Petroleum Exporting Countries (OPEC) from causing what Trump views as artificial and undue price inflation by removing crude supplies from the market, USA senator Chuck Grassley, along with a fellow republican and two democratic lawmakers, have introduced legislation in the Senate that will allow Washington to bring lawsuits against OPEC members for antitrust violations.

"Saudi Arabia and Russian Federation talking about supplying the markets, that would certainly have the potential to weigh on market sentiments", Lipow said. Although, markets edged up on Friday in the wake of Saudi Arabia moving to allay some fears of oversupply.

Although both crude benchmarks had climbed 1 percent on Wednesday, with other EIA data showing U.S. gasoline stockpiles fell along with supplies of distillate fuels.

The US State Department has also expressed that it is not anticipating providing any waivers or extensions, which means that there will be no exemptions for anyone.

"Refinery utilization rates in the United States have been kept at nearly full capacity and it will gradually fall with planned maintenance, which will lead to a build-up in overall crude stockpiles, while gasoline and distillate inventories shrink", Lim Jaekyun, a commodities analyst at KB Securities, said by phone in Seoul.

The problem for oil bulls is that the market remains oversupplied.

Despite the jump, inventories at the US oil delivery hub for WTI in Cushing, Oklahoma were forecast to have fallen 1.8 million barrels, or 6.2 percent, through Tuesday, traders said, citing energy information provider Genscape.

"While Saudi Arabia is under pressure from Trump to keep oil prices low, it probably won't like them to be too low at the same time", said Hong Sungki, a commodities trader at NH Investment & Securities Seoul.

"The correction in the oil price represents something of a convergence between fundamentals and physical realities", David Reid, lead crude market analyst at consultancy JBC Energy, told Reuters. USA crude oil production last week hit 11 million barrels per day (bpd) for the first time in the nation's history.

US crude stocks rose by 5.8 million barrels last week, compared with a forecast of a decline of 3.6 million barrels.

"The dollar was a one-way ticket for the last couple of weeks and basically reversed directions, giving us some strong support", said Phil Flynn, analyst at Price Futures Group.

He said Saudi Arabia's crude oil exports in July would be roughly equal to June levels. In June, production of crude oil hit 10.7 million bpd and production of natural gas liquids hit 4.2 million bpd.

OPEC's commitment in June was to bring compliance to the OPEC production cut deal closer to 100%-which would equate to about a 1 million bpd increase in production.

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