A Sideways Summer Trading Pattern
Oil prices continue to stagnate, holding near five month highs without daring to break out to the upside, while refined products cling to small gains to start the day, comfortably entrenched in their sideways summer trading pattern.
As the forward curve charts below show, physical diesel prices remain in a firm contango as the market deals with a continued overhang of inventory. Gasoline prices meanwhile are seeing only a fraction of the backwardation we’d normally expect this time of year, as excess supply and weak demand have taken out a large portion of the summer/winter RVP spread.
While futures prices continue to go nowhere in the short term, don’t be fooled into thinking that not much is going on, as there are several remarkable events underway in the industry that could be game changers long term.
See this WSJ article for more detail on the rapid and unprecedented shift to renewable production by traditional oil refineries. In addition, Shell announced it was planning to permanently close one of its Philippine plants due to the COVID demand fallout.
For more on the EPA’s methane ruling that raises the bar for climate change regulations, even though some of the industry’s largest players don’t want that.
The U.S. seized fuel cargos from four Iranian vessels headed for Venezuela, a new escalation in the sanction battle that at other times has been a shooting battle. It’s hard to remember that earlier this year the U.S./Iranian tensions had some market watchers calling for $100 oil.
Tropical Storm Josephine was named Thursday, but continues to be forecast as a fish storm that will stay out to sea and not threaten the U.S. coastline. There’s another system that is given 40% odds of forming just off the North Carolina/Virginia coast, but it too is pointed out to sea, so we can rest easy for a few days before the inevitable next wave of potential threats in this record setting storm season.
The EIA this morning reported on the influence of currency price moves on oil imports. The currency/commodity correlation was a major factor in oil prices for years, but had broken down the past several years before returning during the pandemic.
Click here to download a PDF of today's TACenergy Market Talk.
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Week 17 - US DOE Inventory Recap
The Energy Complex Is Trading Modestly Lower So Far This Morning With WTI Crude Oil Futures Leading The Way
Energy Futures Are Drifting Quietly Higher This Morning
Refined Products Holding Close To Break Even While Oil Prices Are Losing Just Under 1%
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Week 17 - US DOE Inventory Recap
The Energy Complex Is Trading Modestly Lower So Far This Morning With WTI Crude Oil Futures Leading The Way
The energy complex is trading modestly lower so far this morning with WTI crude oil futures leading the way, exchanging hands $1.50 per barrel lower (-1.9%) than Tuesday’s settlement price. Gasoline and diesel futures are following suit, dropping .0390 and .0280 per gallon, respectively.
A surprise crude oil build (one that doesn’t include any changes to the SPR) as reported by the American Petroleum Institute late Tuesday is taking credit for the bearish trading seen this morning. The Institute estimated an increase in crude inventories of ~5 million barrels and drop in both refined product stocks of 1.5-2.2 million barrels for the week ending April 26. The Department of Energy’s official report is due out at it’s regular time (9:30 CDT) this morning.
The Senate Budget Committee is scheduled to hold a hearing at 9:00 AM EST this morning regarding a years-long probe into climate change messaging from big oil companies. Following a 3-year investigation, Senate and House Democrats released their final report yesterday alleging major oil companies have internally recognized the impacts of fossil fuels on the climate since as far back as the 1960s, while privately lobbying against climate legislation and publicly presenting a narrative that undermines a connection between the two. Whether this will have a tangible effect on policy or is just the latest announcement in an election-yeardeluge is yet to be seen.
Speaking of deluge, another drone attack was launched against Russian infrastructure earlier this morning, causing an explosion and subsequent fire at Rosneft’s Ryazan refinery. While likely a response to the five killed from Russian missile strikes in Odesa and Kharkiv, Kyiv has yet to officially claim responsibility for the attack that successfully struck state infrastructure just 130 miles from Moscow.
The crude oil bears are on a tear this past week, blowing past WTI’s 5 and 10 day moving averages on Monday and opening below it’s 50-day MA this morning. The $80 level is likely a key resistance level, below which the path is open for the American oil benchmark to drop to the $75 level in short order.
Click here to download a PDF of today's TACenergy Market Talk.
Energy Futures Are Drifting Quietly Higher This Morning
Energy futures are drifting quietly higher this morning as a new round of hostage negotiations between Israel and Hamas seem to show relative promise. It seems the market is focusing on the prospect of cooler heads prevailing, rather than the pervasive rocket/drone exchanges, the latest of which took place over Israel’s northern border.
A warmer-than-expected winter depressed diesel demand and, likewise, distillate refinery margins, which has dropped to its lowest level since the beginning of 2022. The ULSD forward curve has shifted into contango (carry) over the past month as traders seek to store their diesel inventories and hope for a pickup in demand, domestic or otherwise.
The DOE announced it had continued rebuilding it’s Strategic Petroleum Reserve this month, noting the addition of 2.3 million barrels of crude so far in April. Depending on what the private sector reported for last week, Wednesday’s DOE report may put current national crude oil inventories (include those of the SPR) above the year’s previous levels, something we haven’t seen since April of 2022, two months after Ukraine war began.
The latest in the Dangote Refinery Saga: Credit stall-out, rising oil prices, and currency exchange.
Click here to download a PDF of today's TACenergy Market Talk.