Disappointment Over Output Cuts And Weak Demand
Disappointment over output cuts, and weak demand have taken the steam out of the energy price rally this week, although the selling has been limited so far, leaving the upward trend intact for now.
Cheaters never prosper? OPEC’s early meeting idea fell through after Russia and Saudi Arabia drew a line in the sand on members of the cartel who aren’t meeting quota. Given the decades of cheating that some of these countries are known for, it seems unlikely the new deal gets done, which seems to have yanked the rug out from under the rally in oil prices.
While the OPEC bid may be gone for now, there are reports that U.S. producers have once again over-healed themselves and may be now be inadvertently setting the stage for a short term oil supply crunch later in the year. The DOE’s latest weekly report seems to add validity to that theory, as the report showed more than one million barrels/day of oil was unaccounted for in the U.S. last week – the fourth straight week of a record in that missing oil figure - suggesting that actual daily output is closer to 10 million barrels/day, rather than the 11.2 million barrel/day official estimate.
Diesel continues to find itself in the unusual position as the weak link in the chain, with days of supply surging to a record high north of 64 days, compared to a seasonal average of 38 days this time of year. Diesel stocks are now at the second highest level on record, and with refinery runs continuing to ramp up, while demand and export volumes stagnate, it seems likely we’ll see a new inventory record set next week. Gasoline stocks meanwhile are sitting at 34 days’ worth of supply vs. a seasonal average of 24, but unlike diesel, are trending lower since reaching a record high of 52 days when the world stopped in early April.
So far, the disappointing demand estimates have only led to relatively minor selloffs, and technical support continues to hold, suggesting traders are willing to overlook current weakness, as long as the future optimism about the economy reopening remains.
Not much change in the forecast path or intensity of Cristobal over the past 24 hours, although it now looks like it will be over the Gulf of Mexico for an additional day, which could allow it to strengthen more and perhaps reach hurricane status. The current path threads the needle and would avoid a direct hit on any refineries, although some offshore oil rigs are already removing non-essential workers as a precaution.
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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.