Energy Complex Seeks Recovery Rally After Reaching One Year Low

Market TalkMonday, Feb 20 2023
Pivotal Week For Price Action

Diesel prices are trying to lead the energy complex in a recovery rally this morning, trading up nearly 6 cents/gallon in a holiday-shortened trading session after reaching a 1 year low on Friday.  Gasoline futures are up nearly 4 cents so far today, after staging a notable comeback Friday afternoon, and erasing most of the losses from earlier in the day.

US Spot markets are not being assessed so most of the refiners and trading houses are taking the day off.  Futures are trading since apparently the rest of the world doesn’t celebrate Washington’s birthday, but will halt at 12:30 central, and there will not be any settlements. 

Diesel prices are back in “rally or else” mode after last week’s futures action set the stage for a slide to $2.50 or below with the lowest weekly settlement since before Russia invaded Ukraine a year ago.  Cash markets aren’t quite so bearish however with many wholesale markets still holding above the lows set in December.  Gasoline prices don’t look nearly so bearish on the charts, still holding well above their February lows, and hinting that they’re ready for the annual spring rally with just 1 week left for the last winter grade RVP contract of the season.

The CFTC still has not released any commitments of traders data since the January 24th report after a cyber-attack impacted a service provider. Last week was the 3rd missed weekly report, so we can continue guessing how the big money funds have been reacting to the waves of selling we’ve seen so far in Feb.

Baker Hughes reported a decline of 2 oil rigs working in the US last week, while natural gas rigs saw an increase of 1.  The total rig count has essentially held steady for the past 5 months as US drillers remain unenthusiastic about the forward outlook for prices even as US oil exports are in high demand.  Canadian drillers meanwhile are getting busy again, with the country’s total rig count reaching a 3 year high in February, as producers make their annual race to take advantage of frozen ground to reach areas that are off limits once the ground thaws. 

Reuters reported last week that Chinese refining capacity has overtaken the US for #1 in the world, with new plants coming online increasing total output potential to 18.4 million barrels/day. That figure is less than the 19 million barrels/day the US had in capacity 2 years ago before the wave of refinery closures.  Despite the diverging paths on capacity, the US is still the world’s largest refiner, as output domestically holds around 90% of nameplate capacity, while Chinese plants only average around 70%.

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Market Talk Update 02.20.2023

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Pivotal Week For Price Action
Market TalkThursday, Mar 30 2023

Refined Products Are Moving Lower For A 2nd Day After Coming Under Heavy Selling Pressure In Wednesday’s Session

Refined products are moving lower for a 2nd day after coming under heavy selling pressure in Wednesday’s session. Rapidly increasing refinery runs and sluggish diesel demand both seemed to weigh heavily on product prices, while crude oil is still benefitting from the disruption of exports from Iraq. Prices remain range-bound, so expect more choppy back and forth action in the weeks ahead.

US oil inventories saw a large decline last week, despite another 13-million barrels of oil being found in the weekly adjustment figure, as imports dropped to a 2-year low, and refinery runs cranked up in most regions as many facilities return from spring maintenance.

The refining utilization percentage jumped to its highest level of the year but remains overstated since the new 250,000 barrels/day of output from Exxon’s Beaumont facility still isn’t being counted in the official capacity figures. If you’re shocked that the government report could have such a glaring omission, then you haven’t been paying attention to the Crude Adjustment figure this year, and the artificially inflated petroleum demand estimates that have come with it.

Speaking of which, we’re now just a couple of months away from WTI Midland crude oil being included in the Dated Brent index, and given the uncertainty in the US over what should be classified as oil vs condensate, expect some confusion once those barrels start being included in the international benchmark as well.  

Diesel demand continues to hover near the lowest levels we’ve seen for the first quarter in the past 20+ years, dropping sharply again last week after 2 straight weeks of increases had some markets hoping that the worst was behind us. Now that we’re moving out of the heating season, we’ll soon get more clarity on how on road and industrial demand is holding up on its own in the weekly figures that have been heavily influenced by the winter that wasn’t across large parts of the country.

Speaking of which, the EIA offered another mea culpa of sorts Wednesday by comparing its October Winter Fuels outlook to the current reality, which shows a huge reduction in heating demand vs expectations just 6-months ago.  

It’s not just domestic consumption of diesel that’s under pressure, exports have fallen below their 5-year average as buyers in South America are buying more Russian barrels, and European nations are getting more from new facilities in the Middle East.

Take a look at the spike in PADD 5 gasoline imports last week to get a feel for how the region may soon be forced to adjust to rapidly increasing refining capacity in Asia, while domestic facilities come under pressure

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Pivotal Week For Price Action
Market TalkWednesday, Mar 29 2023

Crude Oil Prices Are Trying To Lead Another Rally In Energy Futures This Morning

Crude oil prices are trying to lead another rally in energy futures this morning, while ULSD prices are resisting the pull higher. Stocks are pointed higher in the early going as no news is seen as good news in the banking crisis.

WTI prices have rallied by $10/barrel in the past 7 trading days, even with a $5 pullback last Thursday and Friday. The recovery puts WTI back in the top half of its March trading range but there’s still another $7 to go before the highs of the month are threatened. 

Yesterday’s API report seems to be aiding the continued strength in crude, with a 6 million barrel inventory decline estimated by the industry group last week. That report also showed a decline of 5.9 million barrels of gasoline which is consistent with the spring pattern of drawdowns as we move through the RVP transition, while distillates saw a build of 550k barrels. The DOE’s weekly report is due out at its normal time this morning. 

Diesel prices seems to be reacting both to the small build in inventories – which is yet another data point of the weak demand so far this year for distillates – and on the back of crumbling natural gas prices that settled at their lowest levels in 2.5 years yesterday and fell below $2/million BTU this morning. 

While diesel futures are soft, rack markets across the Southwestern US remain unusually tight, with spreads vs spot markets approaching $1/gallon in several cases as local refiners go through maintenance and pipeline capacity for resupply remains limited. The tightest supply in the region however remains the Phoenix CBG boutique gasoline grade which is going for $1.20/gallon over spots as several of the few refineries that can make that product are having to perform maintenance at the same time. 

French refinery strikes continue for a 4th week and are estimated to be keeping close to 1 million barrels/day of fuel production offline, which is roughly 90% of French capacity and almost 1% of total global capacity. That disruption is having numerous ripple effects on crude oil markets in the Atlantic basin, while the impact on refined product supplies and prices remains much more contained than it was when this happened just 5 months ago.

Click here to download a PDF of today's TACenergy Market Talk.

Pivotal Week For Price Action