Bearish Figures From DOE Wiped Out OPEC-Rumor Gains
Wednesday was a busy and volatile day of trading for energy contracts as some bearish figures from the DOE largely wiped out the early OPEC-Rumor gains, and created one of the largest divergences between gasoline and diesel prices of the past 10 years. The reversal pushed WTI and RBOB futures to fresh multi-month lows, and set the stage for a test of the $60 mark for WTI and $70 for Brent in the near future.
The EIA’s estimate of US crude oil production surged by 400,000 barrels last week, from what was an all-time high of 11.2 million barrels/day to 11.6 million. For perspective, that weekly increase amounts to roughly 40% of the anticipated drop in Iranian exports that had the market all stirred up for most of the summer. Of course the realities of the differing crude grades and transportation bottlenecks means the new US barrels can’t replace Iranian barrels so easily, but the raw number is another reminder just how efficient US producers have become in the past few years.
RBOB gasoline futures completed a 50 cent tumble in just 35 days, from a high of $2.15 Oct 3, to a low of $1.6382 on Nov 7. While we expect gasoline prices to drop in the fall due to the annual RVP transition, this year’s slide happened after both futures and spot markets had already made the switch to winter-grade products, making it especially remarkable.
You may have also noticed that RBOB and ULSD prices widened by more than 9 cents/gallon during Wednesday’s trading, pushing the “Heat to Gas” spread to levels not seen in almost 5 years, and taking back its status as a “Widow Maker” trade.
We’ve only seen ULSD trade 50+ cents above RBOB a handful of times in the past 13 years (since RBOB became the primary futures contract and usually those spikes are reserved for extreme winter weather events that create a spike in heating demand, which certainly isn’t the case today. If we do get a severe cold snap this winter however, with values already approaching record levels, it’s not hard to imagine the diesel premiums approaching all-time record levels, with $1/gallon spreads a distant but suddenly realistic possibility.
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Energy Futures Are Drifting Quietly Higher This Morning
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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.