Choppy Morning For Energy Prices, But The Volatility Continues To Slowly Diminish
It’s been another choppy morning for energy prices, but the volatility continues to slowly diminish, with “only” 10-12 cent price swings for refined products, compared to the 30-50 cent swings we got used to seeing in March.
So far the biggest story of the day is that Natural gas continues to flow from Russia to Europe despite threats to cut off supplies today for countries that wouldn’t pay in Rubles. An apparent loophole in the Russian ruble rule may allow both sides to keep those supplies moving, without “giving in” to the other, which seems to be helping alleviate some concerns of an immediate supply shortage.
Yesterday’s big news was the biggest planned release of US strategic petroleum reserves on record, after OPEC & Russia signaled they were not changing their supply plans despite pleading from the US and other nations.
While the long term impact of this SPR release (which accounts for less than 2 days’ worth of global demand) is debatable, it has certainly taken some of the backwardation out of the forward curve, and may become one of the regulatory arbitrage deals in history for buyers capable of utilizing that crude today and paying it back later at much lower prices.
That’s not a joke. The first day of April trading brings with it the first day of May ULSD as the prompt diesel contract, and it opened up trading some 35 cents below where the April futures contract ended. What does that mean for you? If you’re looking at a continuous chart you may see a huge drop in futures prices, but in reality, your cash prices are pointing to a 4 cent gain at the moment.
While the world worries about how they’ll replace energy supplies, Russia is struggling to cope with simultaneous inventory excesses and shortages within its borders. More Russian refineries are signaling that they’ll be forced to cut run rates due to a lack of storage as their buyers have disappeared, leading to the biggest drop in output on record in that country. On the other hand, Russia’s military continues to grapple with a lack of fuel supply, which is probably going to get worse after a Rosneft fuel terminal just 40 miles from the Ukraine border was reportedly attacked.
March was another strong month for job growth in the US, according to the estimate just released another 431,000 positions were added, and the February and March estimates were revised even higher by a combined 95,000. That strength helped lower both the headline and U-6 unemployment rates to pre-pandemic levels of 3.6% and 6.9% respectively. Equity markets did not react in a big way to that report, but energy futures did seem to find a bid just after its release.
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.