Energy Complex Under Heavy Selling Pressure
The energy complex is under heavy selling pressure for a 2nd straight day after almost reaching new 6 year highs Monday as a tentative agreement between OPEC Members, slowing imports from China and some ugly demand estimates from the DOE all seem to be giving buyers pause.
After a yoyo overnight session, prices were holding near break-even levels Wednesday until the DOE’s weekly status report (which was delayed an hour due to some unknown technical glitch) showed some troubling demand numbers, after last week’s bullish report sent prices to new multi-year highs.
Distillates look particularly troublesome as demand dropped sharply and is now estimated to be below where it was this time last year, which could be a consequence of people traveling this year instead of ordering packages from Amazon. Even with diesel exports reaching a 1 year high, and output declining for a 3rd straight week, diesel inventories still built, which may keep refiners hesitant to increase run rates. There is a huge disparity across the country however as the Midwest (PADD 2) looks like it has more diesel than it knows what to do with as stocks have increased by 30% in less than 2 months, and the Gulf Coast (PADD 3) continues to hold above average inventory, while PADDs 1, 4 and 5 are all below average levels, with evidence at the rack level suggesting product remains tight.
Gasoline demand also saw a large drop a week after reaching an all-time high. This is probably partially due to the holiday hangover effect of drivers not needing to fill up for a while after topping off for their road trips. It is also another reminder of how challenging (aka unreliable) the weekly estimates are. As a reminder, since they really don’t estimate actual consumption, they estimate the product that’s moved out of the bulk system.
Refinery rates held relatively steady on the week, with a small net decline. It’s worth noting that after a brutal stretch that saw US refining capacity drop by the most in decades, total US capacity showed a small increase of 38mb last week. That’s a reminder that even though many refiners are still struggling through an existential crisis caused by excess global capacity and the crescendo of climate change concerns, there are still facilities with logistical and scale advantages putting money into expanding that will continue to put pressure on those that don’t.
You can read here to see the EU’s wide ranging proposal for reducing carbon emissions. Don’t expect any immediate market impacts however as getting any of these proposals approved by member countries is expected to take years.
Click here to download a PDF of today's TACenergy Market Talk, including all charts from the weekly DOE report.
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Week 18 - US DOE Inventory Recap
Crude Oil, Gasoline, And Diesel Benchmarks Are All Trading >1% Lower To Start The Day
Energy prices are sinking again this morning, albeit with a little more conviction than yesterday’s lackadaisical wilting. Crude oil, gasoline, and diesel benchmarks are all trading >1% lower to start the day with headlines pointing to an across-the-board build in national inventories as the source for this morning’s bearish sentiment. The Department of Energy’s official report is due out at its regular time this morning (9:30am CDT).
WTI has broken below its 100-day moving average this morning as it fleshed out the downward trend that began early last month. While crossing this technical threshold may not be significant in and of itself (it happened multiple times back in February), the fact that it coincides with the weekly and monthly charts also breaking below a handful of their respective moving averages paints a pretty bearish picture in the short term. The door is open for prices to drop down to $75 per barrel in the next couple weeks.
Shortly after the EIA’s weekly data showed U.S. commercial crude inventories surpassing 2023 levels for the first time this year, their monthly short-term energy outlook is forecasting a fall back to the bottom end of the 5-year range by August due to increasing refinery runs over the period. However, afterward the administration expects a rise in inventories into 2025, citing continued production increases and loosening global markets hindering the incentive to send those excess barrels overseas. The agency also cut back their average gas and diesel price forecasts for the first time since February with the biggest reductions in the second and third quarter of this year.
The STEO also featured their famed price prediction for WTI, stating with 95% confidence that the price for crude oil will be between $40 and $140 through 2026.
Need a general indication of the global crude oil supply? Most headlines seem to be covering a shortage of a different type of oil, one that we haven’t turned into fuel (yet).
Click here to download a PDF of today's TACenergy Market Talk.
The Perceived Cooling Of Regional Tensions In The Middle East Area Attributing To The Quiet Start To Today’s Trading Session
The energy complex is drifting lower this morning with RBOB futures outpacing its counterparts, trading -.9% lower so far to start the day. The oils (WTI, Brent, heating) are down only .2%-.3% so far this morning.
The perceived cooling of regional tensions in the Middle East area attributing to the quiet start to today’s trading session, despite Israel’s seizure of an important border crossing. A ceasefire/hostage-release agreement was proposed Monday, and accepted by Hamas, but rejected by Israel as they seemingly pushed ahead with their Rafah offensive.
U.S. oil and natural gas production both hit record highs in 2023 and continue to rise in 2024, with oil output currently standing at 13.12 million barrels per day and January 2024 natural gas production slightly exceeding the previous year. With WTI currently changing hands at higher than year-ago levels, this increased production trend is expected to continue despite a decrease in rigs drilling for these resources.
Less than a week after the Senate Budget Committee’s hearing centered on the credibility of big oil’s climate preservation efforts, a major oil company was reported to have sold millions of carbon capture credits, without capturing any carbon. Fraud surrounding government subsidies to push climate-conscious fuel initiatives is nothing new, on a small scale, but it will be interesting to see how much (if any) of the book is thrown at a major refiner.
Today’s interesting read: sourcing hydrogen for refining.
Click here to download a PDF of today's TACenergy Market Talk.