Petroleum markets continue to recalibrate

The global oil markets recently rebalanced faster than previously anticipated, according to the U.S. Energy Information Administration (EIA).

But that doesn’t mean prices at the pump will make a major move any time soon. The petroleum market continues to deal with lost demand and uncertainty caused by the coronavirus pandemic.

“As new restrictions and measurements to combat the spread of COVID-19 rapidly evolve, near-term impacts on domestic gasoline and diesel fuel markets remain highly uncertain,” EIA noted in its short-term energy outlook this month.

EIA predicts effects of the pandemic on the fuel markets will be “substantial” through the summer driving season, more so for gasoline than diesel as consumers cut back on travel.

EIA projects prices this year could average $37.55 per barrel for crude oil in the U.S. (down $20 from 2019), $2.11 per gallon for gasoline (down 49 cents) and $2.52 for diesel (down 54 cents). It then looks for prices to rebound to averages of $45.70 per barrel for oil, $2.23 per gallon for gas and $2.59 for diesel in 2021.

“The situation in the world oil market continues to shift,” EIA noted in its report. “Global oil markets are rebalancing faster than previously anticipated.”

The market shifted from an oversupply globally of about 21 million barrels per day in April to a draw-down in stocks in June. Consumption of petroleum liquid fuels increased 10 million barrels per day last month compared to April.

Crude prices subsequently rebounded to $40 per barrel in June, up $22 from a multiyear monthly low in April.

The rapid recovery and rebalancing act appears good for the ethanol industry, which idled production at numerous plants the first half of the year when the U.S. gross domestic product declined an estimated 6.4%.

USDA forecast corn used for ethanol could slip 50 million bushels to 4.85 billion bushels in 2019-20 due to lost demand from the pandemic. But the Ag Department maintained its estimate of corn used for ethanol at 5.2 billion bushels for 2020-21 in its latest ag supply and demand estimates.

While liquid fuel prices seem to be on a steady track through harvest, supplies of natural gas appear more than adequate for the upcoming grain drying season.

EIA projects the supply of working natural gas in storage could reach 4.039 billion cubic feet by the end of October, which would be a record for the month. On the flip side, EIA expects natural gas prices to rise by 2021.