Door Open For Further Gains
Energy futures are pulling back slightly after reaching fresh highs for the year overnight, as it appears doubts over Russia’s cooperation with OPEC is outweighing concerns over the fighting in Libya in the ongoing battle for trader’s attention. The push to new highs for each of the big 4 petroleum contracts this week leaves the door open for further gains from a technical perspective, and with the driving season still in front of us, there may be enough seasonal momentum still left for one more push higher before the “Sell by May and go away” crowd returns to the market.
RBOB gasoline futures broke above the $2/gallon mark for the first time in nearly 6 months overnight, marking a 73 cent/gallon increase from the low-trade on the first trading day of the year. If RBOB futures can settle above that $2 mark, the next natural stopping point on the chart looks to be October’s high of $2.15/gallon.
While gasoline prices across most US spot markets have had similarly strong spring rallies, the West Coast continues to outpace the rest of the country, with California prices trading some 60-70 cents higher than the Gulf & East Coasts (charts below). A handful of refinery issues, and limited resupply options due to California’s unique specifications have combined to push spot prices up by more than a dollar/gallon so far this year.
ULSD prices have finally joined in on the action after underperforming gasoline for most of the year. Diesel futures face a key test this week at the 200 day moving average, which was breached briefly overnight before prices pulled back. A break of that resistance could allow another 20 cents of gains for diesel near term.
Today’s interesting read: The Dallas FED released a new study on the change in global oil pricing relationships, specifically how quality-based price differentials have eroded due to refinery modernization and changing crude supply dynamics, saying “In essence, complex refiners arbitraged away much of the quality-related price differential that previously existed.”
The EIA’s Petroleum Supply monthly report sheds further light on the changing crude supply dynamics, detailing the record setting year for US oil producers and highlighting long term output changes by state.
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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.