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Home , Price of oil

April 2020

PETROLEUM WATCH CALIFORNIA ENERGY COMMISSION

INSIDE REFINERY NEWS

Gasoline Retail Prices by Brand • Marathon Los Angeles: On • PBF Torrance: In March, the March 7, the refinery reported refinery began cutting production Diesel Retail Prices by Region an overpressure event in a due to demand concerns resulting Brent and WTI Crude Prices heater, causing the heater stack from COVID-19 (Reuters). to lean. In March, the refinery • Wilmington: In U.S. Crude Inventories began cutting production due to March, the refinery began demand concerns resulting from Refinery Utilization Rates cutting production due to COVID-19 (Cal OES, Reuters). demand concerns resulting Futures Price Curves • PBF Martinez: In March, the from COVID-19 (Reuters). refinery began cutting production Featured Topic: due to demand concerns resulting Crude Oil Price Shock from COVID-19 (Reuters).

CALIFORNIA GASOLINE RETAIL PRICES BY BRAND

March 2020 vs. 2019 $4.60 (Percentage Change) $4.40 76 3% lower $4.20 $4.00 ARCO 3% lower $3.80 Chevron 3% lower $3.60 Hypermart 6% lower $3.40 Shell 3% lower $3.20 Unbranded 3% lower $3.00 Valero 4% lower $2.80

Dollars per Gallon (Nominal) Gallon per Dollars $2.60 March 2020 Averages $2.40 76 $3.37 Jul-19 Apr-19 Apr-20 Oct-19 Jun-19 Jan-20 Mar-20 Feb-20 Nov-19 Dec-19 Aug-19 Sep-19 ARCO $3.10 May-19 76 ARCO CHEVRON Chevron $3.45 HYPERMART SHELL UNBRANDED Hypermart $2.94 VALERO Source: California Energy Commission (CEC) analysis of Oil Price Information Service (OPIS) data Shell $3.42 Unbranded $3.16 Valero $3.24

CALIFORNIA DIESEL RETAIL PRICES BY REGION

March 2020 vs. 2019 $4.40 $4.30 (Percentage Change) $4.20 Northern CA 9% lower $4.10 Central CA 8% lower $4.00 Southern CA 7% lower $3.90 $3.80 March 2020 Averages $3.70 $3.60 Northern CA $3.47 $3.50 Central CA $3.41 $3.40 Southern CA $3.56

Dollars per Gallon (Nominal) Gallon per Dollars $3.30 $3.20 $3.10 Jul-19 Apr-19 Apr-20 Oct-19 Jun-19 Jan-20 Mar-20 Feb-20 Nov-19 Dec-19 Aug-19 Sep-19 May-19 Northern Central Southern Source: CEC analysis of OPIS data

BRENT AND (WTI) CRUDE PRICES

BRENT AND WTI CRUDE PRICES

$150

$125

2008 Recession $100

$75 Shale Boom

$50 Dollars per (Nominal)

US-Shale cost to produce: $23.35 $25

Saudi Arabia cost to produce: $8.98 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

BRENT WTI

Source: U.S. Energy Information Administration (EIA) and

WTI 120-DAY PRICE HISTORY

January 21, First case of coronavirus in U.S. announced

$60

March 6, January 7, World Health rejected demand to cut Organization (WHO) announced oil production $50 identification of a new virus

$40 March 9, price of oil dropped more than 30 percent and WTI dropped 20 percent $30 March 11, WHO declared the coronavirus outbreak a Dollars per Barrel (Nominal) pandemic; President Trump suspends travel from Europe $20 March 30, US crude oil prices fell below $15 a barrel − 03 20 − 10 20 − 17 20 − 24 20 − 06 20 − 13 20 − 20 − 27 20 Jan Jan Jan Jan Feb Feb Feb Feb Mar − 02 20 Mar − 09 20 Mar − 16 20 Mar − 23 20 Mar − 30 20 Dec − 02 19 Dec − 09 19 Dec − 16 19 Dec − 23 19 Dec − 30 19

Source: EIA

U.S. CRUDE INVENTORIES (WEEKLY)

550

530

510

490

470

450 Million Barrels Million 430

410

390

370 Jul Apr Oct Jun Jan Mar Feb Nov Dec Aug Sep May

2016 2017 2018 2019 2020 Source: EIA

REFINERY UTILIZATION RATES

100

95

90

85

80

75

70

65 Weekly Refinery Utilization (Percent) Utilization Refinery Weekly 60 Jul-19 Apr-20 Apr-19 Oct-19 Oct-18 Jun-19 Jan-20 Jan-19 Mar-20 Mar-19 Feb-20 Feb-19 Nov-19 Dec-19 Nov-18 Dec-18 Aug-19 Sep-19 Sep-18 May-19

Weekly U.S. Refinery Utilization (Percent) Weekly West Coast (PADD 5) Refinery Utilization (Percent) 2019 Average Weekly U.S. Refinery Utilization (90.6 percent) 2019 Average Weekly West Coast (PADD 5) Refinery Utilization (89.6 percent)

Source: EIA

FUTURES PRICE CURVES

$70

$65

$60

$55

$50

$45

$40

$35

$30

Dollars per Barrel (Nominal) Barrel per Dollars $25

$20

$15 Jul-20 Apr-20 Jun-20 Jan-20 Mar-20 Feb-20 Aug-20 Sep-20 May-20

Delivery Date of

1/6/2020 1/30/2020 3/6/2020 3/9/2020 3/19/2020 3/27/2020

Source: CEC analysis of EIA data

FEATURED TOPIC

CRUDE OIL centers, and schools, all weakening TIMELINE product demand and PRICE SHOCK causing crude oil prices to collapse. Brent and WTI Crude Prices fell 73 January 2020 According to OPIS, retail gasoline and 67 percent, respectively, within sales across the continental U.S. for January 7, WHO two months of the WHO declaring announced they had the weekend of April 4-5 were down identified a new virus the coronavirus (COVID-19) a global 45 to 49 percent from the same January 21, First case of emergency. Russia’s refusal to comply period in 2019. Weak demand for coronavirus in the U.S. is with ’s oil production announced transportation fuels led refineries to quotas at the March 6 Organization January 23, Wuhan, cut Refinery Utilization Rates. West of Petroleum Exporting Countries China was placed under Coast refineries cut rates from 92 quarantine (OPEC) summit sparked the abrupt percent in February to 69 percent on January 30, WHO price decreases. The combination declared coronavirus a April 3. Overall, U.S. refinery utilization of the rapid demand drop caused global emergency followed a similar trend but a higher by COVID-19 and the OPEC crude rate of 76 percent by April 3. With February 2020 production dispute created an refineries buying less crude oil, the extreme imbalance of crude demand , IEA demand for oil falls, followed by the February 15 and supply and swift price declines. announced that demand price. The impact of stay-at-home growth would fall to the Other factors contributed to the price orders will drive down demand for lowest rate since 2011 shock, such as inventory builds and refined products even further. prolonged oil price declines, March 2020 referred to as a bear market. However, BEAR MARKET March 6, Russia objects the primary driving force was the to production cuts at significant reduction in global OPEC summit After the WHO declared COVID-19 a demand from COVID-19 outbreak. global health emergency on January March 8, Saudi Arabia discounted oil prices 30, CNBC reported the Dow Jones SUPPLY BUILD Industrial Average (Dow) dropped 603 March 9, Brent points, or 2.1 percent, making it one crude price of oil dropped High production rates and growing more than 30 percent and of the top five worst one-day point WTI dropped 20 percent crude inventories pushed crude declines in the past 12 months. A prices downward even before March 11, WHO declared week after the IEA announced demand the coronavirus outbreak the WHO warned of COVID-19 growth would fall, the Dow ended a pandemic; President in January. According to the EIA, Trump suspends travel February 24 at 1,031 points lower. from Europe U.S. oil fields produced at all-time In the wake of the oil feud between high rates of 13 million barrels per March 13, President Saudi Arabia and Russia, the Dow day (bpd). This ramp up in crude Trump declares a national had the worst single-day point drop emergency over the production contributed to U.S. Crude coronavirus outbreak in U.S. market history on March 9, Inventories increasing 8.8 percent at 2,014 points, or 7.8 percent. This March 17, European between January 3 and March Union bars most travelers decline was the beginning of multiple 27. Although inventories were not from outside the bloc for record setting one-day point losses 30 days near historical peaks, the growth in Dow Jones history. On March 15, was larger than anticipated. March 19, California the Federal Reserve cut interest declares shelter-in-place On March 6, OPEC members and rates to zero to help stabilize the March 22, One in three Russia (OPEC+) met to discuss market - instead the market reacted Americans are ordered to production cuts to combat the by falling 2,997 points the next day. stay home price decay from COVID-19. Russia On March 23, CNBC reported the March 28, Unemployment refused to cut its production by claims rise to over six Dow hit a bottom of 18,321 points, million within two weeks 500,000 bpd, which would have matching November 8, 2016. On been half of the proposed collective March 30, U.S. crude oil March 27, President Donald Trump prices fell below $15 a reduction. In response, Saudi signed a two-trillion-dollar stimulus barrel Arabia discounted their oil prices package to help the U.S. economy as and increased production rates. unemployment claims soared to over 6 According to the Journal, million between March 21 and March Sources: BBC, Bloomberg, Business Insider, Department of Labor, , Oilprice.com, New York Times, The Guardian Saudi Arabian oil fields produce oil at 28, as reported by the The Guardian. The Dow maintained daily average the lowest cost possible in the world from stay-at-home order to prevent points of 21,508 between March 24 ($8.98 per barrel in 2016) allowing the spread of COVID-19. WTI futures and April 3, while U.S. retail gasoline Saudi Arabia to produce high levels curves changed from backwardation prices continued to decrease under in this pricing environment. Russia’s to during this time. Contango $1.91 a gallon. At the time of this production cost is over double the cost is typically observed in periods of writing, prices continue to be unstable of Saudi Arabia’s ($19.21 per barrel oversupply. Futures contract prices and the U.S. market remains uncertain. in 2016), but the Russian concern for August show an increase in is retaining market share. U.S. oil price and prices moving further into producers are vulnerable to price OIL FUTURES IN CONTANGO contango. This indicates oversupply decline due to higher costs ($23.35 will continue but inventories may Large oil producers, consumers, and per barrel for U.S. shale in 2016). Until start to tighten by August as supply traders exchange futures contracts to these factors change, production and and demand factors change. drilling rates in the U.S. will remain arrange sale of crude oil delivery at a low. Producers are instead looking for specified future month, allowing for TAKEAWAYS storage for crude and refined products price certainty and protection from price fluctuations of the underlying as demand is too weak to keep Crude oil prices crashed with commodity. Oil producers sell futures existing facilities from overflowing. comparable magnitudes during the to guarantee a minimum income and 2008 recession and again in 2014 protect against price drops, while DEMAND DROP with the U.S. Shale Revolution. The oil consumers, such as airlines, try reduction in economic activity and to protect against price spikes by The main factor in the crude oil financial unrest in 2008 caused locking in cheaper prices for the price shock is the drop in demand demand for oil to drop and bring months ahead. For WTI oil futures, for transportation fuels during the prices to the $30 per barrel range the trading month ends the third COVID-19 pandemic. The virus was (Brent and WTI Crude Prices). Towards business day prior to the 25th of each first identified by investigation into the end of 2014, the shale boom month. Trades occurring after that an outbreak in Wuhan, China in introduced new drilling techniques. day are for the next futures month. December 2019. Since then the virus U.S. oil fields deemed economically has quickly spread to every continent Futures contract prices provide a unfeasible became profitable resulting (except Antarctica), causing massive look into market trends by comparing in an oil production surge. OPEC economic hardship within months. future prices from next month suddenly lost its largest importers China's lockdown began on January to a month further in the future. and prices fell from $100 per barrel 23. This had had a huge effect on the Analysts plot a day’s many delivery to below $60. Usually these price global oil market as China accounted month prices together as Futures devastations benefit drivers who for more than 80 percent of the Price Curves to look for trends. will pay less at the pump while the global oil demand growth in 2019. Backwardation (downward slope) producers suffer. The annual average As the virus spread from country occurs when the upcoming future retail price per gallon for the U.S. in to country, international travel was price (one month away) is higher 2008 was $3.24 and decreased to quickly restricted. The U.S. suspended than later future contracts. Contango $2.35 in 2009. During the shale boom, air travel from China on January is the opposite (upward slope), the national price per gallon averaged 31 and then from Europe on March occurring when upcoming contract $3.35 in 2014 and dropped to an 11, causing flight cancellations and prices are lower than contract prices annual average of $2.14 in 2016. farther away. On Futures Price plummeting jet fuel demand. Cruise Expect the prices of oil and refined Curves, backwardation shows as ship, tanker ship, and container products to stay relatively low in the January 6 curve (green) while ship owners slowed activity and the the months going forward, like the contango looks like the March 27 demand for heavy fuel oil lessened. price trends in 2008 and 2014. The curve (orange). Moving further into As a result, the International Energy futures curves suggest that prices will backwardation or contango means Agency (IEA) projected in March pickup in May, but at $35 less than a steepening of the futures curve. that global oil demand would drop January 2020. The main factor for as much as 20 percent in 2020. EIA provides crude oil futures contract prices is that demand is dependent On March 19, California responded data for up to four months for on the activity of the global economy. with a stay-at-home order. By March crude oil from Cushing, Oklahoma. Unemployment, travel lockdowns, 22, stay-at-home orders affected one Oil futures started out this year in and stay-at-home orders are forcing of every three Americans. Businesses backwardation, but the expiration of businesses and governments to and shops shut down, and employers OPEC’s current supply cut followed brace for the next recession. The oil issued layoffs and furloughs for by Saudi Arabia’s announcement industry appears to be expecting those who could not work from of increased production increased massive slowdowns in production and home. Non-essential travel bans supply and lowered future prices. This spending, alongside bankruptcies and resulted in empty freeways, shopping was followed by demand reductions restructurings for 2020 and 2021.

Gavin Newsom Karen Douglas, J.D. CALIFORNIA Governor J. Andrew McAllister, Ph.D. ENERGY Patty Monahan David Hochschild Commissioners COMMISSION Chair Drew Bohan Janea A. Scott, J.D Executive Director Vice Chair FOR MORE INFORMATION Instagram California's Petroleum Market Twitter LinkedIn Weekly Fuels Watch Subscribe

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