Demand Fears Are Hammering Energy Prices This Week
Demand fears are hammering energy prices this week, with gasoline futures reaching a 7 month low, while distillates have dropped nearly 30 cents so far this week. Today is the last trading day for the September RBOB and ULSD contracts, so watch the October futures (RBV and HOV) for direction if your markets haven’t already rolled to the new reference months.
Tomorrow, the prompt RBOB contract will be a winter spec, which is trading around $2.45 this morning, some 15 cents cheaper than the expiring summer grade contract, and will be the lowest price since January 25th. Gulf Coast cash markets have already started trading winter-spec gasoline grades, and are trading below $2.30/gallon this morning, which could mean some retailers in the south may be posting prices below $3 this weekend if prices hold.
China’s new lockdowns, on top of reports that their factory activity was already slowing down are both contributing to the bearish sentiment this week, as is the sense that Europe is already in a recession, and things may only get worse as consumers struggle just to heat their homes.
OPEC’s technical committee reported a larger surplus in oil supplies than previous forecasts, and highlighted the risks to oil demand caused by inflation and the tighter monetary policy attempting to combat it. While that outlook gives the cartel an excuse to announce production cuts at their meeting next Monday, reporters in Russia are claiming the OPEC & Friends group is not yet putting that option on the table. Of course, Monday just happens to be a holiday in the US & Canada, and spot markets won’t be assessed but futures will be open, meaning we could see some wild price swings that will keep rack prices moving even while most are trying to soak up their last few moments of summer.
The API reported a draw in gasoline inventories of 3.4 million barrels last week, and a decline of 1.7 million barrels for distillates. Crude oil stocks were up just under 600,000 barrels on the week, which is not too impressive given that we’re still seeing SPR releases of nearly 7 million barrels each week. The DOE’s weekly report is due out at its normal time this morning.
The storm that will probably be named Danielle in the next few days should move north and not make a direct hit on the US. The other storm moving off the African coast will have to be watched for a few days, but isn’t given high odds of becoming a US threat either, while a 3rd system in the north Atlantic is too far out to sea to be a threat.
Click here to download a PDF of today's TACenergy Market Talk.
Latest Posts
Energy Prices Fluctuate: Chinese Imports Surge, Saudi Arabia Cuts Output and Buys Golf
Week 23 - US DOE Inventory Recap
Energy Prices Retreat, Global Demand Concerns Loom
Crude Oil Futures Are Leading The Energy Complex Higher This Morning After The Sunday’s OPEC+ Meeting
Social Media
News & Views
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.