Bulls Have Taken Back Control Of The Energy Markets To Start The New Year
The bulls have taken back control of the energy markets to start the new year, with a 3 day rally pushing Brent crude back above $80, and ULSD above $2.40 for the first time since you first heard about Omicron.
With a settlement above $2.40 on Tuesday, diesel futures have broken through their short term technical resistance, and now have an open road on the charts to push north of $2.50 in the coming weeks, and are not wasting any time already adding 2.5 cents this morning. RBOB continues to lag behind the ULSD enthusiasm, and still has some work to do to make a similar technical breakout, and gasoline prices have more fundamental headwinds this time of year which could create a tug of war between the two products for control of the complex.
Refinery upsets along the Gulf and West coasts continue to plague the industry, and seem to be contributing to the strength in product prices. The PNW continues to be the hardest hit as multiple facilities in the region remain offline in part or entirely following a freeze that anyone working at a Texas refinery a year ago can empathize with, which of course came just a couple short weeks after those facilities were shut down due to flooding. Prices in the region jumped double digits Tuesday on word of the extended downtime caused by the freeze.
Don’t underestimate the influence of fuel prices: Kazakhstan’s government resigned today following protests over the removal of fuel subsidies. It’s interesting to note that these protest focus on propane prices, which had been capped for years, which encouraged many to convert their vehicles to run on LPG instead of gasoline. Apparently the protesters thought the removal of those price caps was not very nice.
Speaking of which, the Dallas FED today released a study that explains why another ban on US crude oil exports would not lower gasoline prices in the country.
Click here to download a PDF of today's TACenergy Market Talk.
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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.