Complex Continues To Move Sideways
Energy futures are slipping for a 3rd straight day, but are not threatening Friday’s low trades, as the complex continues to move sideways, languishing through the winter doldrums stuck in technical-trading purgatory.
The API was said to show inventory builds across the board last week, albeit relatively minor in size. Crude oil stocks were reported to increase about 2.5 million barrels, gasoline inventories were up 1.7 million, while diesel stocks increased by around 140,000 barrels.
The EIA’s version of weekly stats is due out at its regular time. Last week’s big number was the large drop in refinery run rates. With numerous unplanned outages reported since that time, there could be another large decline today. In addition to the weather-related events of the past week, there are reports the multiple refineries in the midcontinent may be moving up their maintenance schedules previously planned for later in 2019, betting that it’s better to shut units now when margins are soft, than later in the year when many expect a prices could surge as the 2020 IMO deadline approaches.
There are still more questions than answers on how the chaos in Venezuela will play out. The story of the past 24 hours has been the count of oil tankers idling off the coast, stranded by the uncertainty.
Several reports are claiming that OPEC is attempting to formalize its cooperation with Russia and the other oil producing countries that have come to terms on production cuts to prop up prices over the past 2 years. At this point, it appears that the Russians aren’t cooperating. Shocking.
The CFTC issued the 2nd “catch up” commitments of traders report Tuesday, showing that money managers (aka hedge funds, aka large speculators) were still cautious about betting on oil and refined products in the last week of 2018. Considering the meltdown they’d just lived through on Christmas eve, it’s hard to blame them. Then again, based on the price rally, and 4 straight weeks of new speculative length additions in Brent that we’ve seen, it seems like a foregone conclusion that the adrenaline junkies who are “managing” money have increased their bets in 2019.
One other item to watch in the COT reports: Swap positions (a proxy for producer hedging in WTI) reached a 15 month low at year-end. There have been concerns that hedge funds leaving the oil market may make forward hedging more challenging for producers, and that’s one place we should be able to figure out whether or not that’s true.
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Crude Oil Inventories Climbed Above Year-Ago Levels For The First Time In 2024
Week 17 - US DOE Inventory Recap
The Energy Complex Is Trading Modestly Lower So Far This Morning With WTI Crude Oil Futures Leading The Way
Energy Futures Are Drifting Quietly Higher This Morning
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Crude Oil Inventories Climbed Above Year-Ago Levels For The First Time In 2024
Sell by May then go away.
The old trading adage looked good for energy markets in 2024 as the new month started off with the biggest daily sell-off of the year so far. WTI and ULSD contracts are now in “rally or else” mode on the charts with sharply lower prices a strong possibility now that technical support layers have broken down. RBOB doesn’t look quite as bearish on the charts, but seasonal factors will now act as a headwind as we’re well into the spring peaking window for gasoline prices, and we’ve already seen a 27 cent drop from the highs. If RBOB can hold above $2.50 there’s a chance to avoid a larger selloff, but if not, a run towards $2.20 for both gasoline and diesel looks likely in the months ahead.
The selling picked up steam following the DOE’s weekly report Wednesday, even though the inventory changes were fairly small. Crude oil inventories continue their steady build and climbed above year-ago levels for the first time in 2024. Demand for refined products remains sluggish, even after accounting for the RD consumption that’s still not in the weekly reports, and most PADDs are following a typical seasonal inventory trend. The Gulf Coast saw a healthy build in diesel inventories last week as the export market slowed for a 3rd straight week. Refinery runs dipped modestly last week following a handful of upsets across the country, but overall rates remain near normal levels for this time of year.
The Transmountain pipeline expansion began operations yesterday, completing a 12-year saga that has the potential to materially change refining economics for plants in the US that relied heavily on discounted Canadian crude to turn profits over the past decade.
The P66 Borger refinery reported another operational upset Monday that lasted a full 24 hours impacting a sulfur recovery unit. Last week the company highlighted how the plant’s fire department helped the surrounding area when the largest wildfire in state history came within feet of the facility.
The EPA approved a new model to determine life cycle carbon intensity scores this week, which cracks open the door for things like ethanol to SAF, which were previously deemed to not reduce emissions enough to qualify for government subsidies. The new model would require improved farming techniques like no-till, cover crop planting and using higher efficiency nitrogen fertilizer to limit the damage done by farms that no longer rotate crops due to the ethanol mandates. Whether or not the theoretical ability to produce SAF comes to fruition in the coming years thanks to the increased tax credit potential will be a key pivot point for some markets that find themselves with too much RD today, but could see those supplies transition to aviation demand.
The FED continues to throw cold water on anyone hoping for a near term cut in interest rates. The FOMC held rates steady as expected Wednesday, but also highlighted the struggles with stubbornly high inflation. The CME’s Fedwatch tool gave 58% odds of at least one rate cut by September before the announcement, and those odds have slipped modestly to 54% this morning.
Week 17 - US DOE Inventory Recap
The Energy Complex Is Trading Modestly Lower So Far This Morning With WTI Crude Oil Futures Leading The Way
The energy complex is trading modestly lower so far this morning with WTI crude oil futures leading the way, exchanging hands $1.50 per barrel lower (-1.9%) than Tuesday’s settlement price. Gasoline and diesel futures are following suit, dropping .0390 and .0280 per gallon, respectively.
A surprise crude oil build (one that doesn’t include any changes to the SPR) as reported by the American Petroleum Institute late Tuesday is taking credit for the bearish trading seen this morning. The Institute estimated an increase in crude inventories of ~5 million barrels and drop in both refined product stocks of 1.5-2.2 million barrels for the week ending April 26. The Department of Energy’s official report is due out at it’s regular time (9:30 CDT) this morning.
The Senate Budget Committee is scheduled to hold a hearing at 9:00 AM EST this morning regarding a years-long probe into climate change messaging from big oil companies. Following a 3-year investigation, Senate and House Democrats released their final report yesterday alleging major oil companies have internally recognized the impacts of fossil fuels on the climate since as far back as the 1960s, while privately lobbying against climate legislation and publicly presenting a narrative that undermines a connection between the two. Whether this will have a tangible effect on policy or is just the latest announcement in an election-yeardeluge is yet to be seen.
Speaking of deluge, another drone attack was launched against Russian infrastructure earlier this morning, causing an explosion and subsequent fire at Rosneft’s Ryazan refinery. While likely a response to the five killed from Russian missile strikes in Odesa and Kharkiv, Kyiv has yet to officially claim responsibility for the attack that successfully struck state infrastructure just 130 miles from Moscow.
The crude oil bears are on a tear this past week, blowing past WTI’s 5 and 10 day moving averages on Monday and opening below it’s 50-day MA this morning. The $80 level is likely a key resistance level, below which the path is open for the American oil benchmark to drop to the $75 level in short order.
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