Bad News For Diesel Fans
WTI prices have traded in a range of less than two dollars/barrel for the past seven trading sessions, as volatility and interest in energy contracts have dwindled after several months when four to five dollar daily swings were the norm. So far in today’s trading session, that high-low range is just 38 cents/barrel, setting a new bar for apathy. Equity markets have seen a similar but less dramatic drop in volatility in recent weeks.
Bad news for diesel fans: The DOE’s weekly report showed inventories reached a new 30+ year high as estimated U.S. consumption was off 20 percent last week. While sharp drops in diesel demand are common following holidays, this report data was compiled prior to July 4, which suggests the numbers could get even worse next week. Gasoline demand saw another slow but steady gain in its weekly demand – disappointing some anticipating a pre-holiday surge – but remain roughly 15 percent below where it would normally be this time of year.
Although it’s well known that the government estimates on a weekly basis are unreliable – which is why many analysts rely on a four week rolling average – it’s easy to understand why gasoline demand is recovering faster, as personal vehicles that drive its consumption are the socially distant mode of transport compared to the diesel-driven buses, trains and other commercial vehicles, not to mention the lack of demand from drilling rigs. Adding to that negative sentiment for diesel, with air travel remaining at extreme lows, refiners are forced to blend more diesel that would normally go to jet production, adding to the glut on that side of the barrel.
There looks to be a silver lining in the court-ordered shutdown of the Dakota access pipeline for some U.S. refiners. Plants on the East Coast that had built out crude-by-rail infrastructure when pipeline capacity was scarce five to ten years ago should now benefit as the DAPL barrels need to find a new way to market. There seems to be plenty of rail capacity given an overhang of rail cars in recent years, and those buyers should enjoy deeper discounts. On the other hand, plants on the eastern half of PADD 2 are getting squeezed in multiple directions as they were already dealing with the Enbridge Line 5 shutdown.
Total U.S. refinery runs increased for an eighth straight week, with the Gulf and West Coasts leading the move higher. With refined product inventories holding near record highs, and exports still not quite strong enough to balance the supply/demand equation, we may see run rates plateau in the next few weeks if reopening plans continue to stall.
Click here to download a PDF of today's TACenergy Market Talk.
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Energy 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.