US Oil M&A Boom Amid Refinery Slowdown

Price

• Falling US crude inventories caused oil prices to rebound on Wednesday after several days of decline, while expectations for a nearing ceasefire deal in the Middle East kept prices from continuing to climb.
• Brent crude futures for September rose 46 cents to $81.47 a barrel by 0020 GMT. US West Texas Intermediate crude for September increased 42 cents to $77.38 per barrel. MCX Crude oil prices opened at 6478 with a rise of 0.53%.

Demand and Supply

• The merger and acquisition frenzy in the U.S. oil patch is still gathering momentum and could result in even more deals than last year. The industry is yet again undergoing a complete makeover.
• Last year, U.S. oil and gas companies announced several massive deals-regularly called megadeals in the media-including Exxon's $60-billion takeover of Pioneer Natural Resources and Chevron's $53-billion merger with Hess, currently being held up by Exxon.
• Indeed, the final quarter of last year saw the highest-ever M&A deal value size, with the total reaching $144 billion. For the whole year, the size of the mergers and acquisitions market in the U.S. reached $234 billion, in stark contrast with the rest of the world, where M&A activity has been in decline since 2014.
• After a stellar 2023, one might think it is time to take a breather to navigate the new environment more successfully, but it appears that oil and gas companies are in a veritable race to get bigger-sooner rather than later.

News

• Some of the top US oil refiners are throttling back operations at their facilities this quarter, adding to concerns that a global glut of crude is forming.
• Marathon Petroleum Corp. — owner of the largest US refinery — plans to operate its 13 plants at an average of 90% of capacity this quarter, the lowest for the period since 2020. Similarly, PBF Energy Inc. announced it’s preparing to process the least crude in three years, Phillips 66 will run its refineries near a two-year low and Valero Energy Corp. expects to trim oil processing.
• Together, those four refiners account for about 40% of America’s capacity to churn out gasoline and diesel. 
• The US fuelmaking complex — a key factor in global supply-demand balances — is faltering as consumption stalls and profit margins shrink. The slowdown bolsters the possibility that an oversupply of crude is looming, a threat that has limited oil prices to a roughly 7% gain this year despite OPEC+’s production cuts and rising geopolitical tensions.
• The trend also bucks the International Energy Agency’s estimate that global fuelmakers will process almost 900,000 barrels a day more this year.

Expert's Opinion

• Prices suffered on continued concern that economic softening in China, which is the world’s biggest crude importer, would weaken global oil demand.
• Technically, the crude oil market is experiencing short covering, with a significant decrease in open interest by -7.83% to settle at 9,408 contracts. Crude oil is currently finding support at 6,389, with a potential test of 6,334 levels on the downside.
• Resistance is expected at 6,486, and a break above this level could push prices toward 6,528.