Energy Complex In Game Of Tug-Of-War

Market TalkWednesday, Mar 6 2019
Gasoline Futures Leading Energy Complex Higher

A large inventory build stopped WTI in its tracks Tuesday afternoon, and has left the energy complex in a lackluster game of tug-of-war overnight as RBOB gasoline futures attempt to push to new highs for the year while crude oil and distillates are trying to slide into the red.

The API was reported to show a 7 million barrel build in crude oil inventories – in spite of increased refinery runs last week. For those watching the large changes in import/export flows over the past few weeks, that build in oil stocks is easy to understand, but still seems to have caught the market a bit off-guard. The industry group was said to show draws in refined products of around 3 million barrels of gasoline, and 300,000 barrels of distillates, which helps explain their relative strength vs crude overnight. The DOE’s weekly report is due out at its normal time today.

Tuesday marked the scheduling day for the last 11.5 pound gasoline grades on Colonial pipeline for the season, meaning 9lb and lower summer-grades will take over the trading & pricing markers until fall. With several markets east of the Rockies still working off a record-setting level of gasoline inventory, this year’s RVP transition could end up with more regional price volatility than most years.

For those that doubt the future of the Permian basin due to Wall-Street funding concerns: Exxon and Chevron both announced plans to dramatically increase their production in the region Tuesday, and neither one is in need of a capital infusion. The plans coincide with previous announcements by the two largest oil companies to acquire or build more refinery capacity along the US Gulf Coast to take advantage of the Permian’s wealth of oil, natural gas and other liquids.

Those announcements conveniently coincided with news that the Department of Energy was authorizing a new LNG export facility along the Gulf Coast, as the country continues to race to build the infrastructure to support its transition from petroleum importer to exporter.

The Dallas FED also highlighted those changes in its monthly energy indicators report, demonstrating how the changing crude slate has impacted gasoline and diesel inventories (and refinery margins) while petrochemical plants are taking advantage of the rapid production of ethane.

This week marks 10 years since US stock indices found a bottom in the midst of the financial crisis. While energy and equity markets have had periods of strong correlation during that span, and seem to influence one another regularly, the S&P 500 is up 319% while WTI is only up 75% during that stretch.

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Pivotal Week For Price Action
Market TalkWednesday, Jun 7 2023

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.

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Pivotal Week For Price Action
Pivotal Week For Price Action
Market TalkTuesday, Jun 6 2023

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.