Disappointing Demand Readings From The DOE
Disappointing demand readings from the DOE, and the latest war of words between the U.S. and China are getting credit for a weak finish to May trading, dampening the results on what has otherwise been a very strong month for energy contracts. June RBOB and HO futures expire today, so watch the July numbers (RBN/HON) to see where spot markets will be heading for the weekend.
Total petroleum demand in the U.S. declined last week, disappointing many looking for the Memorial Day bump to keep the recovery rally in place. While gasoline demand did tick higher on the week, inventories outside of the West Coast continued to build. Diesel continues down its unusual path of being the weak link in the energy chain, as soft demand and exports send inventories towards record highs. While there have been numerous stories of refineries ramping up run rates or bringing idled units back online to match the demand recovery, these inventory overhangs and soft margins may limit both the capability and desire to do so.
The EIA’s unaccounted for crude oil calculation reached a new record for a third straight week at -999,000 barrels/day, suggesting actual U.S. oil production is about one million barrels/day lower than the official output estimate, a testament both to the scope and flexibility of the U.S. energy industry, and to the challenge of gathering statistical data in real time.
Lies, damn lies and…The EIA isn’t the only one struggling to keep their data accurate these days. The IMF noted how the abrupt nature of the pandemic has disrupted the production of statistics, which is likely to hamper policymakers in their efforts to spur recovery.
The latest example of how oil output cuts are easier said than done: A Reuters report this morning notes that Russia’s Rosneft Oil Company is unable to reduce output to mandated levels while still fulfilling its long term contract obligations.
Click here to download a PDF of today's TACenergy Market Talk.
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Energy 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.