Black Cloud Hangs Over Energy Arena
After shrugging off an attempted selloff in Wednesday’s session, energy futures are coming under some modest selling pressure again to start Thursday’s trading, although prices remain stuck in their sideways range for now. Dropping demand and swelling inventories are once again becoming the black cloud hanging over the energy arena as yesterday’s DOE report painted a bleak picture for producers and refiners over the coming months.
U.S. diesel inventories reached a new 30+ year high last week, as demand estimates dropped sharply once again. See the PADD 3 Diesel chart below to see how that glut of supply is primarily found on the U.S. Gulf Coast, which is creating some unique logistical challenges for refiners. The good news is that diesel exports are increasing and were almost back to pre-COVID levels last week. If that trend can hold, then perhaps the glut of diesel isn’t as big of an issue as it currently appears. One unusual wrinkle to watch for: ordinarily, hurricane season threatens supply shortages and basis value spikes, but in this new environment if the export ships can’t move, we could actually see the opposite effect.
Oh by the way, we might see this theory get put to the test sooner rather than later, as two storm systems are moving towards land. The first is expected to be named Tropical Storm Hanna, expected to hit in the next day or two on the Texas coast some time over the weekend. The current path keeps it away from any direct hits on refineries or ports, and likely does not have enough time to strengthen into a hurricane. Meanwhile, TS Gonzalo will likely become the year’s first Atlantic Hurricane as it reaches the Caribbean next week, and will be watched closely for direction as it starts to turn north.
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.