U.S. shale production: As OPEC+ continues chatter of increasing production in that part of the world, breakeven levels regarding U.S. shale production has been an oft-discussed topic in recent months. Per 1st quarter data from the Dallas Fed Energy Survey, companies need an average $65 per barrel to profitably drill a new well. Also, earlier this week, ConocoPhillips chairman and CEO Ryan Lance indicated shale production in the U.S. will likely plateau if prices remain in the low $60/barrel level and decline if prices are consistently in $50 range. Some are also saying that prevailing uncertainty will accelerate the peak in U.S. oil production but Mr. Lance also indicates “don’t bet against our industry....obviously, the balance sheets are in pretty good shape across the industry, better than we were in the last downturn, but you’ll see a lot of activity cut back.”
EU tariffs: President Trump is indicating today he is recommending a straight 50% tariff on goods from the European Union (EU) beginning on June 1st. The reason is that they have been hard to deal with on trade. His comment on Truth Social indicated following, “The European Union, which was formed for the primary purpose of taking advantage of the United States on TRADE, has been very difficult to deal with, Our discussions with them are going nowhere!” This, a long with potential additional OPEC+ production increases are providing pressure on the market today.
India: In April, crude oil imports fell 6.5% month-on-month (to 21.23 million metric tons) for India. The country is the world’s third-largest importer as well as third largest consumer of the fuel. Data from Petroleum Planning and Analysis Cell (PPAC) also indicated this was about a 1% decline from April 2024. Fuel demand in April was off by 3.7% compared to previous month and its product exports also fell during the month. This detail comes as OPEC+ members have June 1 meeting approaching where they will be discussing another large crude oil production increase. UBS analyst Giovanni Staunovo suggests, “India is expected to be the country with the largest demand growth over the coming years, so imports are likely to trend still higher in the medium term.”
Market Overview: For a second consecutive day, early activity has energy complex decidedly moving lower. If this weakness continues through entire session, it will also mark first weekly loss in last three weeks. The combination of EU tariffs along with OPEC+ considering additional production hikes is pressuring crude and testing $60 support.
Outlook for 2025 hurricane season:
Earlier this week, forecasts emerged for 2025 Atlantic hurricane season. Meteorologists are estimating 13-18 named storms during the year compared to historical average of 14. Of this this total, 3-6 of them are anticipated to directly impact the United States. The U.S. Gulf Coast holds 55% of the nation’s refining capacity and these potential events, of course, pose significant threat to U.S. oil industry as production halts and longer-term closures may be result to those refineries in Louisiana and Texas. The extent of the market disruption is primarily dependent on location followed by intensity. Plus, huge challenges to logistics and supply chains also result. Generally, a storm will only affect one cluster of refineries but more than 1 million barrels per day (bpd) being taken offline can easily be experienced.
West Texas Intermediate (WTI) crude was able to show a small gain on the day after nearly falling through $60 level early in the session. At the settle it was up $0.33 (to $61.53), yet, that means for the week was still down (by around 1.5%). Today's Baker Hughes weekly report showed the number of oil rigs operating in the U.S. fell by 8 (to 465) and is off by 32 from one year ago. Canada's oil rig count also fell today (by 3) and now totals 71. These falling levels occur as OPEC+ considers further production increases for July with more detail on that coming when they meet next weekend (June 1st). The products showed losses on the day as RBOB gasoline was down $0.0220 (to $2.1092) and ULSD distillates were off $0.0127 (to $2.1048). This meant they both also had weekly losses (as each was off by more than 1.50%). Have a safe Memorial Day holiday!
