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.
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Week 18 - US DOE Inventory Recap
Crude Oil, Gasoline, And Diesel Benchmarks Are All Trading >1% Lower To Start The Day
Energy prices are sinking again this morning, albeit with a little more conviction than yesterday’s lackadaisical wilting. Crude oil, gasoline, and diesel benchmarks are all trading >1% lower to start the day with headlines pointing to an across-the-board build in national inventories as the source for this morning’s bearish sentiment. The Department of Energy’s official report is due out at its regular time this morning (9:30am CDT).
WTI has broken below its 100-day moving average this morning as it fleshed out the downward trend that began early last month. While crossing this technical threshold may not be significant in and of itself (it happened multiple times back in February), the fact that it coincides with the weekly and monthly charts also breaking below a handful of their respective moving averages paints a pretty bearish picture in the short term. The door is open for prices to drop down to $75 per barrel in the next couple weeks.
Shortly after the EIA’s weekly data showed U.S. commercial crude inventories surpassing 2023 levels for the first time this year, their monthly short-term energy outlook is forecasting a fall back to the bottom end of the 5-year range by August due to increasing refinery runs over the period. However, afterward the administration expects a rise in inventories into 2025, citing continued production increases and loosening global markets hindering the incentive to send those excess barrels overseas. The agency also cut back their average gas and diesel price forecasts for the first time since February with the biggest reductions in the second and third quarter of this year.
The STEO also featured their famed price prediction for WTI, stating with 95% confidence that the price for crude oil will be between $40 and $140 through 2026.
Need a general indication of the global crude oil supply? Most headlines seem to be covering a shortage of a different type of oil, one that we haven’t turned into fuel (yet).
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The Perceived Cooling Of Regional Tensions In The Middle East Area Attributing To The Quiet Start To Today’s Trading Session
The energy complex is drifting lower this morning with RBOB futures outpacing its counterparts, trading -.9% lower so far to start the day. The oils (WTI, Brent, heating) are down only .2%-.3% so far this morning.
The perceived cooling of regional tensions in the Middle East area attributing to the quiet start to today’s trading session, despite Israel’s seizure of an important border crossing. A ceasefire/hostage-release agreement was proposed Monday, and accepted by Hamas, but rejected by Israel as they seemingly pushed ahead with their Rafah offensive.
U.S. oil and natural gas production both hit record highs in 2023 and continue to rise in 2024, with oil output currently standing at 13.12 million barrels per day and January 2024 natural gas production slightly exceeding the previous year. With WTI currently changing hands at higher than year-ago levels, this increased production trend is expected to continue despite a decrease in rigs drilling for these resources.
Less than a week after the Senate Budget Committee’s hearing centered on the credibility of big oil’s climate preservation efforts, a major oil company was reported to have sold millions of carbon capture credits, without capturing any carbon. Fraud surrounding government subsidies to push climate-conscious fuel initiatives is nothing new, on a small scale, but it will be interesting to see how much (if any) of the book is thrown at a major refiner.
Today’s interesting read: sourcing hydrogen for refining.
Click here to download a PDF of today's TACenergy Market Talk.