Chart Support Survived A Big Wave Of Selling To Start The Week
Chart support survived a big wave of selling to start the week, and petroleum prices are now moving higher as buyers (or more likely the algorithms they’ve programmed) gain more confidence that a price breakdown is unlikely in the near future. RBOB gasoline futures are up more than 20 cents from Monday’s low trade, and back in the July trading range. ULSD prices are up 15 cents from Tuesday’s low, but need to get back above the $3.55 mark to break the descending triangle pattern that still threatens to push prices to $3 in the coming weeks.
Early (and unofficial) reports from the OPEC & Friends meeting suggest the cartel will make a modest increase of 100,000 barrels/day to its quota in September. Oil and product prices actually moved higher following those rumors as the increase is the smallest on record for the cartel, and is essentially meaningless given that actual output has lagged behind the allowed quotas for the entire year.
The API reported a build in crude stocks of 2 million barrels last week, while refined products were estimated to have small declines of less than ½ million barrels each. Keep in mind the build in oil stocks includes the ongoing drawdown of oil from the SPR, and all else being equal, would equate to a nearly 5 million barrel decline in US stocks if those barrels weren’t being released. The EIA’s weekly status report is due out at its normal time of 9:30 central.
While the shortage of refining capacity to meet fuel demand in the Western hemisphere has been well documented this year, the EIA on Tuesday published a note highlighting 9 new refinery projects slated to come online in the next 18 months, that will add nearly 3% to global refining capacity…all of which are in Asia and the Middle East, which will further shift the global flow of oil and its various products.
While backwardation remains a major theme in global energy markets, for the first time in many months 2 US regions have actually slipped into a contango price curve for distillates. Both Group 3 and Chicago ULSD prices are now trading higher for September delivery than they are for prompt barrels, which is a reflection of the lull in regional demand prior to the harvest season. This compilation of recent articles suggests you shouldn’t bet on this trend expanding to other markets.
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.