Debate Over Economic Restarts Face Off Against Fears
The holding pattern continues for oil prices this week as a debate over signs of economic restarts, both domestically and abroad, face off against fears of a second-wave of the coronavirus. WTI and ULSD futures are both holding in their recent trading range, while RBOB futures are breaking their upward trend, and threatening a larger selloff.
We’re in the data-deluge week with the EIA, OPEC and IEA all releasing their monthly reports, in addition to the weekly API and DOE data. The first three of those reports have been released already and show a common theme of slowly improving fuel demand, spread unevenly across the various refined products.
OPEC’s oil output rose by 1.8 million barrels/day in April, as Saudi Arabia made good on its threat to flood the global market right as the world was experiencing the largest demand drop in history. That story should flip in May as the price war has ended, and country’s slowly reopen for business.
The API was reported to estimate that U.S. oil inventories built by 7.5 million barrels last week, which was larger than most published forecasts.
The industry group also estimated another gasoline inventory draw-down of 1.9 million barrels, while distillates were up by 4.7 million barrels. You’d be forgiven if you thought the API showed the opposite build/draw in inventories based on the price reaction overnight with RBOB down two cents and ULSD up one, which suggests the early action may have more to do with the charts after RBOB’s trend line broke Tuesday.
Wheels off the charts: The EIA’s monthly short term energy outlook showed how the wild action of the past two months has broken the mold. The front page of that report typically shows a price forecast for WTI, including 95 percent confidence intervals for those projections. This month the EIA is “unable to construct” those intervals because of “data issues” surrounding the extreme volatility and lack of liquidity in options markets it created. In other words, given the two standard deviation from the mean calculation of a confidence interval, and prices doing what they’ve done, the price estimate is around 30 dollars for WTI, but the confidence would be somewhere in the range of plus or minus $50/barrel from that mark.
The STEO was able to estimate that global energy consumption will start outpacing production in the back half of this year, and that energy related CO2 emissions would fall by 11 percent, the largest drop in over 70 years of data.
The DOE’s weekly report is due out at its regular time this morning. Watch the refinery yield and export figures to see how refineries are reacting to their undesirable transition from an excess of gasoline inventory to a glut of diesel. While it may take a few weeks for plants to shift gears, and longer still to show up in the data, the increased complexity and flexibility of many U.S. refineries seems to be more capable of solving the demand puzzle than ever before.
Click here to download a PDF of today's TACenergy Market Talk.
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Gasoline Futures Are Leading The Way Lower This Morning
It was a volatile night for markets around the world as Israel reportedly launched a direct strike against Iran. Many global markets, from equities to currencies to commodities saw big swings as traders initially braced for the worst, then reversed course rapidly once Iran indicated that it was not planning to retaliate. Refined products spiked following the initial reports, with ULSD futures up 11 cents and RBOB up 7 at their highest, only to reverse to losses this morning. Equities saw similar moves in reverse overnight as a flight to safety trade soon gave way to a sigh of relief recovery.
Gasoline futures are leading the way lower this morning, adding to the argument that we may have seen the spring peak in prices a week ago, unless some actual disruption pops up in the coming weeks. The longer term up-trend is still intact and sets a near-term target to the downside roughly 9 cents below current values. ULSD meanwhile is just a nickel away from setting new lows for the year, which would open up a technical trap door for prices to slide another 30 cents as we move towards summer.
A Reuters report this morning suggests that the EPA is ready to announce another temporary waiver of smog-prevention rules that will allow E15 sales this summer as political winds continue to prove stronger than any legitimate environmental agenda. RIN prices had stabilized around 45 cents/RIN for D4 and D6 credits this week and are already trading a penny lower following this report.
Delek’s Big Spring refinery reported maintenance on an FCC unit that would require 3 days of work. That facility, along with several others across TX, have had numerous issues ever since the deep freeze events in 2021 and 2024 did widespread damage. Meanwhile, overnight storms across the Midwest caused at least one terminal to be knocked offline in the St. Louis area, but so far no refinery upsets have been reported.
Meanwhile, in Russia: Refiners are apparently installing anti-drone nets to protect their facilities since apparently their sling shots stopped working.
Click here to download a PDF of today's TACenergy Market Talk.
The Sell-Off Continues In Energy Markets, RBOB Gasoline Futures Are Now Down Nearly 13 Cents In The Past Two Days
The sell-off continues in energy markets. RBOB gasoline futures are now down nearly 13 cents in the past two days, and have fallen 16 cents from a week ago, leading to questions about whether or not we’ve seen the seasonal peak in gasoline prices. ULSD futures are also coming under heavy selling pressure, dropping 15 cents so far this week and are trading at their lowest level since January 3rd.
The drop on the weekly chart certainly takes away the upside momentum for gasoline that still favored a run at the $3 mark just a few days ago, but the longer term up-trend that helped propel a 90-cent increase since mid-December is still intact as long as prices stay above the $2.60 mark for the next week. If diesel prices break below $2.50 there’s a strong possibility that we see another 30 cent price drop in the next couple of weeks.
An unwind of long positions after Iran’s attack on Israel was swatted out of the sky without further escalation (so far anyway) and reports that Russia is resuming refinery runs, both seeming to be contributing factors to the sharp pullback in prices.
Along with the uncertainty about where the next attacks may or may not occur, and if they will have any meaningful impact on supply, come no shortage of rumors about potential SPR releases or how OPEC might respond to the crisis. The only thing that’s certain at this point, is that there’s much more spare capacity for both oil production and refining now than there was 2 years ago, which seems to be helping keep a lid on prices despite so much tension.
In addition, for those that remember the chaos in oil markets 50 years ago sparked by similar events in and around Israel, read this note from the NY Times on why things are different this time around.
The DOE’s weekly status report was largely ignored in the midst of the big sell-off Wednesday, with few noteworthy items in the report.
Diesel demand did see a strong recovery from last week’s throwaway figure that proves the vulnerability of the weekly estimates, particularly the week after a holiday, but that did nothing to slow the sell-off in ULSD futures.
Perhaps the biggest next of the week was that the agency made its seasonal changes to nameplate refining capacity as facilities emerged from their spring maintenance.
PADD 2 saw an increase of 36mb/day, and PADD 3 increased by 72mb/day, both of which set new records for regional capacity. PADD 5 meanwhile continued its slow-motion decline, losing another 30mb/day of capacity as California’s war of attrition against the industry continues. It’s worth noting that given the glacial pace of EIA reporting on the topic, we’re unlikely to see the impact of Rodeo’s conversion in the official numbers until next year.
Speaking of which, if you believe the PADD 5 diesel chart below that suggests the region is running out of the fuel, when in fact there’s an excess in most local markets, you haven’t been paying attention. Gasoline inventories on the West Coast however do appear consistent with reality as less refining output and a lack of resupply options both continue to create headaches for suppliers.