Disappearing Rallies Are Becoming A Theme In The Energy Arena
Disappearing rallies are becoming a theme in the energy arena this week as Wednesday’s action saw 10 cent overnight gains erased throughout the day, and already Thursday we’ve seen nickel gains overnight turn into 3 cent losses early going. The smack downs of any attempted bounce are adding to the bearish sentiment on the charts, and leaving the complex at risk of another sharp selloff in the back half of the week.
There is no doubt that fear is taking hold of both equity and energy markets, with volatility indices soaring to 1 year highs, and each mention of a new Omicron case seeming to have an immediately negative impact on prices, particularly now that the FED seems to be changing its stance, and viewing the virus as an inflation risk, not a reason to create more inflation themselves as they’ve done the past 2 years.
The best hope for a recovery rally that’s able to last more than a few hours may come from the OPEC & Friends meeting this morning, if the cartel agrees to pause or reverse its output increases due to the Omicron outbreak and its expected impact on global fuel demand. Then again, the guesses that the cartel may change course today have been increasing all week and yet prices continue to fall.
The DOE’s weekly report was largely shrugged off and overshadowed by the Omicron in the US story Wednesday, but there are some bearish fundamentals that won’t help encourage buyers to step in and buy the dip. US Crude oil production reached an 18 month high, even though there’s still a quarter million gallons per day of production offline from Hurricane Ida, and numerous bottlenecks in the supply chain slowing the rate of drilling. As those two issues are worked through in 2022, it’s likely we will see US output jump north of 12 million barrels/day at a time when the world doesn’t seem to need more supply.
Speaking of which, the report also showed a large pullback in US fuel demand, particularly in gasoline, and with the holiday hangover not yet in the numbers, we could see another big drop in consumption in the weeks to come.
While the meltdown in futures is getting most of the attention this week, prices in the Pacific Northwest have been resisting the trend with basis values jumping sharply higher as at least 3 refineries in the region are still having to reduce run rates due to a lack of crude oil supply caused by last month’s flooding. The good news for suppliers in the region is that Transmountain pipeline is still on track to restart next week which should bring relief to those plants in short order.
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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
Refined Products Holding Close To Break Even While Oil Prices Are Losing Just Under 1%
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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.
Click here to download a PDF of today's TACenergy Market Talk.
Energy Futures Are Drifting Quietly Higher This Morning
Energy futures are drifting quietly higher this morning as a new round of hostage negotiations between Israel and Hamas seem to show relative promise. It seems the market is focusing on the prospect of cooler heads prevailing, rather than the pervasive rocket/drone exchanges, the latest of which took place over Israel’s northern border.
A warmer-than-expected winter depressed diesel demand and, likewise, distillate refinery margins, which has dropped to its lowest level since the beginning of 2022. The ULSD forward curve has shifted into contango (carry) over the past month as traders seek to store their diesel inventories and hope for a pickup in demand, domestic or otherwise.
The DOE announced it had continued rebuilding it’s Strategic Petroleum Reserve this month, noting the addition of 2.3 million barrels of crude so far in April. Depending on what the private sector reported for last week, Wednesday’s DOE report may put current national crude oil inventories (include those of the SPR) above the year’s previous levels, something we haven’t seen since April of 2022, two months after Ukraine war began.
The latest in the Dangote Refinery Saga: Credit stall-out, rising oil prices, and currency exchange.
Click here to download a PDF of today's TACenergy Market Talk.