Data Deluge Week Provides Plenty Of Information To Process Across The Market
Energy contracts are taking a breather to start Thursday’s session, with small losses seen just ahead of 8 am central, after reaching fresh multi-month highs in the overnight session.
It’s data deluge week with the DOE, OPEC and EIA all releasing their monthly oil market reports on top of the weekly stats, giving traders plenty of information to digest on top of the normal debate over interest rates and other geopolitical issues.
Like the DOE earlier in the week, OPEC’s analysts are increasing the global demand forecast for the next couple of years, largely because economic activity has not contracted as much as many had feared so far in 2023. The cartel’s PHDs predict that air travel will continue its rapid recovery this year, and be a key driver of demand growth, while China, India and the US will also see growth in gasoline demand from steadily rising road mobility rates. Delta Airlines seems to have confirmed the OPEC theory of strong air travel reporting record quarterly earnings this morning, despite lower earnings from its refining segment.
The IEA is taking a more pessimistic view and is lowering its growth forecasts due to a deepening manufacturing slump that is offsetting the surging petrochemical use in China. The IEA also highlighted the sharp drop in demand from African countries after fuel subsidies were taken away, a painful reality shared by countries like Venezuela, Mexico and India that continue to struggle with market realities.
The DOE’s weekly report was highlighted by steep declines in the weekly demand estimates, which confirmed predictions that consumers had filled their tanks ahead of the holiday, and many commercial operations took 4 days off to start the month. The other big number in the report was a surge in refinery runs across most regions as facilities recovered from their June setbacks.
So much for that flaring: Despite a rash of unplanned operational upsets in the past week impacting both Southern and Northern CA refiners, the DOE figures showed PADD 5 refinery runs surged to their highest levels since the start of COVID last week, which put downward pressure on both gasoline and diesel basis values across the West Coast. PADD 2 run rates came close to an all-time high last week, as Midwestern refineries continue to benefit from buying land-locked crude and making more product than their local markets can handle, sending Chicago-area basis levels sharply lower once again.
The lone holdout in the refinery run increases was the rounding error known as PADD 4, which saw its run rates decline presumably due to the latest in a string of mishaps at Suncor, which is still seeing operations disrupted by a cyber-attack.
ExxonMobil announced it will become the largest CO2 pipeline operator in the US this morning, with a $4.9 billion purchase of Denbury.
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The Energy Bulls Are On The Run This Morning, Lead By Heating And Crude Oil Futures
The energy bulls are on the run this morning, lead by heating and crude oil futures. The November HO contract is trading ~7.5 cents per gallon (2.3%) higher while WTI is bumped $1.24 per barrel (1.3%) so far in pre-market trading. Their gasoline counterpart is rallying in sympathy with .3% gains to start the day.
The October contracts for both RBOB and HO expire today, and while trading action looks to be pretty tame so far, it isn’t a rare occurrence to see some big price swings on expiring contracts as traders look to close their positions. It should be noted that the only physical market pricing still pricing their product off of October futures, while the rest of the nation already switched to the November contract over the last week or so.
We’ve now got two named storms in the Atlantic, Philippe and Rina, but both aren’t expected to develop into major storms. While most models show both storms staying out to sea, the European model for weather forecasting shows there is a possibility that Philippe gets close enough to the Northeast to bring rain to the area, but not much else.
The term “$100 oil” is starting to pop up in headlines more and more mostly because WTI settled above the $90 level back on Tuesday, but partially because it’s a nice round number that’s easy to yell in debates or hear about from your father-in-law on the golf course. While the prospect of sustained high energy prices could be harmful to the economy, its important to note that the current short supply environment is voluntary. The spigot could be turned back on at any point, which could topple oil prices in short order.
Click here to download a PDF of today's TACenergy Market Talk.
Gasoline And Crude Oil Futures Are All Trading Between .5% And .8% Lower To Start The Day
The energy complex is sagging this morning with the exception of the distillate benchmark as the prompt month trading higher by about a penny. Gasoline and crude oil futures are all trading between .5% and .8% lower to start the day, pulling back after WTI traded above $95 briefly in the overnight session.
There isn’t much in the way of news this morning with most still citing the expectation for tight global supply, inflation and interest rates, and production cuts by OPEC+.
As reported by the Department of Energy yesterday, refinery runs dropped in all PADDs, except for PADD 3, as we plug along into the fall turnaround season. Crude oil inventories drew down last week, despite lower runs and exports, and increased imports, likely due to the crude oil “adjustment” the EIA uses to reconcile any missing barrels from their calculated estimates.
Diesel remains tight in the US, particularly in PADD 5 (West Coast + Nevada, Arizona) but stockpiles are climbing back towards their 5-year seasonal range. It unsurprising to see a spike in ULSD imports to the region since both Los Angeles and San Francisco spot markets are trading at 50+ cent premiums to the NYMEX. We’ve yet to see such relief on the gasoline side of the barrel, and we likely won’t until the market switches to a higher RVP.