After Another Big Rally Wednesday, Energy Prices Are Seeing A Quiet Start To Trading Thursday
After another big rally Wednesday, energy prices are seeing a quiet start to trading Thursday, with little news so far to give us the expected 20 cent swings we’ve become accustomed to in March. There are multiple summits taking place in Europe this week that will decide the next steps in the efforts to end the war in Ukraine, and the (relative) lack of price movement so far today seems to be the market taking a wait and see approach to those meetings.
Yesterday’s DOE report continued to provide evidence that there simply is not a good short term solution to the global supply crunch, but also that the US is in a much better position than most other countries these days.
Gulf Coast refiners are doing their part to make up for a lack of refined products in other markets, increasing run rates for a 5th straight week, and surpassing 8.7 million barrels/day for just the third time since the COVID lockdowns forced plants to reduce rates, and helped drive the biggest decrease in refining capacity in 40 years. How many would like to ask for a do-over on shuttering those plants in light of recent events? The other notable phenomenon is that PADD 3 run rates surpassed 55% of total US throughput rates as the Gulf Coast states continue to grab market share from those that have declared war on their refiners and are now paying a huge price as a result.
Speaking of which, take a look at the huge drop in diesel imports over the past two weeks in the charts below to see a good graphical representation of the scramble for importers to find distillates on cargo ships to replace barrels coming from Russia, regardless of their original destination. The US still produces 10-15% more diesel than it consumes every day, but domestic markets have to compete with international buyers in the coastal markets, and for the Gulf Coast refiners, it often is more cost effective to send diesel to parts of Europe and South America than it is to some parts of the US thanks to the Jones Act and CARB regulations.
Damage assessments are underway at the Black Sea Oil port that transports roughly 1% of global supply after Russian officials claimed it was shuttered after a storm. It’s hard to know (even before they invaded Ukraine) what’s real and what’s propaganda, but there are signs that the pipeline feeding the port is still operational.
An EIA note this morning predicts that US renewable diesel production will surpass biodiesel production this year, as new plants come online, and the feedstock wars are won by RD as it is not only a drop-in replacement for ULSD, but also commands more environmental subsidies. The report also shows that production growth for both RD and Bio is expected to slow dramatically after the race to convert during the aforementioned COVID refinery shuttering, and the combined total of the two products will only reach 8% of total distillate output in 2050, vs 6% today. So much for Net Zero.
Latest Posts
Energy Prices Fluctuate: Chinese Imports Surge, Saudi Arabia Cuts Output and Buys Golf
Week 23 - US DOE Inventory Recap
Energy Prices Retreat, Global Demand Concerns Loom
Crude Oil Futures Are Leading The Energy Complex Higher This Morning After The Sunday’s OPEC+ Meeting
Social Media
News & Views
View AllEnergy Prices Fluctuate: Chinese Imports Surge, Saudi Arabia Cuts Output and Buys Golf
Energy prices continue their back-and-forth trading, starting Wednesday’s session with modest gains, after a round of selling Tuesday wiped out the Saudi output cut bounce.
A surge in China’s imports of crude oil and natural gas seem to be the catalyst for the early move higher, even though weak export activity from the world’s largest fuel buyer suggests the global economy is still struggling.
New tactic? Saudi Arabia’s plan to voluntarily cut oil production by another 1 million barrels/day failed to sustain a rally in oil prices to start the week, so they bought the PGA tour.
The EIA’s monthly Short Term Energy Outlook raised its price forecast for oil, citing the Saudi cuts, and OPEC’s commitment to extend current production restrictions through 2024. The increase in prices comes despite reducing the forecast for US fuel consumption, as GDP growth projections continue to decline from previous estimates.
The report included a special article on diesel consumption, and its changing relationship with economic activity that does a good job of explaining why diesel prices are $2/gallon cheaper today than they were a year ago.
The API reported healthy builds in refined product inventories last week, with distillates up 4.5 million barrels while gasoline stocks were up 2.4 million barrels in the wake of Memorial Day. Crude inventories declined by 1.7 million barrels on the week. The DOE’s weekly report is due out at its normal time this morning.
We’re still waiting on the EPA’s final ruling on the Renewable Fuel Standard for the next few years, which is due a week from today, but another Reuters article suggests that eRINs will not be included in this round of making up the rules.
Click here to download a PDF of today's TACenergy Market Talk.
Week 23 - US DOE Inventory Recap
Energy Prices Retreat, Global Demand Concerns Loom
So much for that rally. Energy prices have given back all of the gains made following Saudi Arabia’s announcement that it would voluntarily withhold another 1 million barrels/day of oil production starting in July. The pullback appears to be rooted in the ongoing concerns over global demand after a soft PMI report for May while markets start to focus on what the FED will do at its FOMC meeting next week.
The lack of follow through to the upside leaves petroleum futures stuck in neutral technical territory, and since the top end of the recent trading range didn’t break, it seems likely we could see another test of the lower end of the range in the near future.
RIN prices have dropped sharply in the past few sessions, with traders apparently not waiting on the EPA’s final RFS ruling – due in a week – to liquidate positions. D6 values dropped to their lowest levels in a year Monday, while D4 values hit a 15-month low. In unrelated news, the DOE’s attempt to turn seaweed into biofuels has run into a whale problem.
Valero reported a process leak at its Three Rivers TX refinery that lasted a fully 24 hours. That’s the latest in a string of upsets for south Texas refineries over the past month that have kept supplies from San Antonio, Austin and DFW tighter than normal. Citgo Corpus Christi also reported an upset over the weekend at a sulfur recovery unit. Several Corpus facilities have been reporting issues since widespread power outages knocked all of the local plants offline last month.
Meanwhile, the Marathon Galveston Bay (FKA Texas City) refinery had another issue over the weekend as an oil movement line was found to be leaking underground but does not appear to have impacted refining operations at the facility. Gulf Coast traders don’t seem concerned by any of the latest refinery issues, with basis values holding steady to start the week.
Click here to download a PDF of today's TACenergy Market Talk.