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It is another Monday risk-off mode as demand fears are creeping back into the oil complex. Reports that Saudi Arabia lowered its selling price for crude from a record high started those concerns and a weak stock is not supportive either. Is demand destruction setting in?

Bloomberg News reported that Saudi Aramco is lowering prices for the first time in four months. The state-controlled company dropped its key Arab light crude grade for next month’s shipments to Asia to $4.40 a barrel above the benchmark it uses, from $9.35 in May. That’s in line with a Bloomberg survey of refiners and traders from late April that forecast a $5 decrease. Aramco also lowered all grades for the northwest Europe region and almost all for the Mediterranean. Prices for U.S. customers were kept unchanged from May.

Saudi Arabia raised its crude to record levels in the past two months after prices surged above $100.00 a barrel when Russia invaded Ukraine. Russian exports have already fallen and may drop further as the European Union moves closer to formally sanctioning energy supplies from the country. While the war has tightened the global oil market, Beijing’s covid zero strategies has led to China’s largest demand shock since the early days of the pandemic. Consumption of gasoline, diesel, and aviation fuel last month was expected to slide 20% from a year earlier, Bloomberg reported on April 22. There was also a report that China’s crude imports from January to April came in at 171 million tons, that’s down 4.8% year over a year. Their natural gas exports were down 8.9% year over year so that’s also playing into the weak demand fears.

Russia, for their part, says that they are finding new buyers for their crude oil. There are a lot of black market people interested in buying oil from Russia. Russia’s Deputy Prime Minister Novak says Russia is considering expanding the capacity of its oil-exporting ports. He also says that the country can pump 34 million tons of oil this year.

Natural gas dipped lower but reversed higher as the bull market in gas is on fire. EBW Analytics reports that the June natural gas contract skyrocketed early last week on a hotter turn in Texas and a dip in dry gas production—sending natural gas as much as $1.752/MMBtu higher on Friday to test psychological resistance at $8.996 before retreating sharply. The technical reversal lower on Friday, softening weather-driven demand, and production creeping higher, are all suggestive that a deeper retest of support is likely near-term.

The balance of price risks for natural gas, however, remains steeply higher over the next 30-45 days. Tremendous upside potential remains ahead this summer. Although spot fundamentals in the United States may not meaningfully tighten for several more weeks. The recent move higher may signal a potential breakout to the upside, earlier than fundamentals alone indicate. So in other words, use the weakness to get hedged or put on bullish summer strategies. Call for details.

Retail gas prices are knocking on the door of a new record high. AAA has it hitting $4.328 today, just about one cent below the record. Diesel prices are at $554.0. Stephanie Kelly at Reuters reports that- U.S. fuel prices have surged faster than crude oil prices in the last month, as the United States has shipped more refined products abroad to supply European markets following Russia’s invasion of Ukraine.

Traders say the world’s stockpiles of fuel are not likely to increase quickly as big producers like OPEC are increasing production slowly. The tightness in fuel markets is more alarming, they say because it shows refiners are having trouble meeting demand even as more crude becomes available through big reserve releases. Washington has released millions of barrels from U.S. strategic reserves, helping control the price of crude. But inventories of products are still falling.

Since the invasion of Ukraine on Feb. 24, U.S. crude futures have risen nearly 17%, Refinitiv Eikon data shows, while U.S. gasoline futures have jumped over 30% and U.S. heating oil futures, a proxy for diesel, have gained 40%. “Generally, at this time of year, products lead crude, but in this case, the spread is much larger than normal. It’s a sign the product market is screaming to refiners, ‘Get to work, we need more supply,” I said. Inventories are particularly tight for distillates at 105 million barrels, the lowest since April 2008, according to the U.S. Energy Information Administration. Commercial U.S. crude stocks are up since late February due to releases from U.S. reserves.

U.S. refined product exports have averaged 6.3 million barrels per day (bpd) in the past four weeks, nearly the fastest rate of export in U.S. history. U.S. crude price rises have been limited by worries about energy demand during China’s prolonged COVID-19 lockdowns.

The U.S. crude discount to global benchmark Brent has narrowed to minus -$2.15 a barrel last week, the smallest since November, before widening again. A narrower discount makes U.S. crude less appealing on foreign markets.

Traders say lower refining capacity, particularly on the East Coast, has tightened product markets, raising premiums on jet fuel and diesel. East Coast distillate inventories are at a record low.” We don’t have the capacity to (export more) while at the same time not affect the domestic market,” said Robert Yawger, executive director of energy futures at Mizuho. “We have increased some refinery utilization but a lot of that increase is going to the eurozone and not to New Jersey.”