Russia/Iran Oil Tankers: The quantity of Iranian and Russian oil held on ships has hit multi month highs as stricter U.S. sanctions reduced the number of buyers, disrupting trade with major importers China and India and leaving fewer tankers available to deliver cargoes and driving up crude costs. Last week President Trump reportedly restored his "maximum b pressure" campaign on Iran that includes efforts to drive its oil exports down to zero in order to stop Tehran from obtaining a nuclear weapon. As exports have risen and deliveries to China have dropped, the amount of Iranian oil in floating storage has expanded by between 10 million and 20 million barrels so far this year, according to analysts' estimates.   

U.S. Oil Production: U.S. oil production is aiming to set a larger record this year than previous estimates. The EIA expects U.S. crude oil production to average 13.59 million bpd in 2025, and in 2026 could increase by 140,000 bpd to 13.73 million bpd. The expectation is for U.S. oil demand in 2025 at 20.5 million bpd, unchanged from a previous forecast and is expected to increase by 100,000 bpd to 20.6 million bpd in 2026. Keep in mind however, the U.S. faces logistical challenges when it comes to increasing crude oil production, which can limit its ability to quickly ramp up output. Logistics related issues, including pipeline and infrastructure bottlenecks is one. Existing pipelines are often at or near full capacity, and building new pipelines or expanding infrastructures, like adding more rail lines, takes time, money, and regulatory approvals. These delays further limit the ability to scale up production quickly. Additionally, the U.S. oil and gas sector faces labor shortages, and in most areas there is a finite amount of equipment available (like drilling rigs and hydraulic fracturing equipment), which can slow down the pace of new production.

U.S. Energy Stocks:  According to the EIA figures, U.S. crude stocks and distillate inventories rose while gasoline stockpiles fell last week. Crude inventories rose by 4.1 million barrels to 427.9 million barrels, compared to analysts' expectations for a 3 million barrel rise, and Cushing, Oklahoma also rose by 872,000 barrels. U.S. gasoline stocks fell by 3 million barrels to 248.1 million barrels, compared to expectations for a 1.4 million barrel build, while distillate stockpiles rose by just 135,000 barrels to 118.6 million barrels, versus expectations for a 1.5 million barrel drop. Refinery crude runs rose by 82,000 barrels per day while utilization rates rose by 0.5% to 85%.    

Market Overview: Oil prices are lower again this morning, extending losses from yesterday, driven by optimism that peace talks between Russia and Ukraine, and encouraged by President Trump, could lead to the easing of sanctions on Russian oil exports as Trump said that talks to end the war in Ukraine would start. Markets are expected to be unstable and headline driven in the coming days, or even weeks.

Distillate Chart - (Daily)

Yesterday, Heating Oil futures dropped right back down to the 62% retracement value of $2.4502 after bearish headlines pushed the market back lower. With today’s trade, that level was breached and has now become short term resistance. The 50% retracement of $2.3846 is the next level of support. Data released yesterday showed that U.S. distillate demand has risen more than 13% when comparing this weeks figures of 4.225 million barrels per day, vs February last year (3.718 million barrels per day).