Energy Futures Are Mixed This Morning With Refined Products Drifting Higher
Energy futures are mixed this morning with refined products drifting higher while both American and European crude oil benchmarks sinking slightly to start the day.
The American Petroleum Institute estimated an across-the-board draw in energy inventory on their report released yesterday afternoon. The ~4.5 million barrel drop in gasoline stockpiles was the largest drop of the three headline values. The institute estimated a drawdown in crude oil and distillate stores of 500 thousand barrels and 800 thousand barrels respectively.
Speculators will likely wait until the Department of Energy releases their weekly inventory report (due out at 9:30am CDT) to make their bets on today’s market direction. A further recovery of national crude oil inventories, which has been on the up-and-up since June, could spur more selling of the prompt month WTI futures contract. The price of crude oil has dropped around $37 per barrel ever since the nation’s stockpile re-entered its 5-year seasonal range after spending most of 2022 at new all-time seasonal lows.
Tail wagging the dog? Some believe a revival of the Iran nuclear deal is unlikely given the price of oil has returned to pre-Ukrainian War levels. The agreement to allow Tehran to continue developing its nuclear technology has been in flux ever since the White House terminated the deal back in 2018, resulting in sanctions that cut the countries oil export capabilities. Even if some sort of compromise is met, a return of Iranian oil to the global market is only expected to cut oil prices by $5-$10 per barrel, which pales in comparison to some of the market moves we’ve become accustomed to seeing since February.
The EIA published a note this morning stating that they expect the production of liquid fuels to outpace demand for the rest of the year. They highlighted that Russia’s higher-than-expected production was a main driver of their outlook revision. While further sanctions from the EU against Moscow, scheduled for the end of this year, still loom, the ability of Western powers to prevent energy exports from Russia are questionable at best.
Click here to download a PDF of today's TACenergy Market Talk.
Latest Posts
Refined Products Are Moving Lower For A 2nd Day After Coming Under Heavy Selling Pressure In Wednesday’s Session
Crude Oil Prices Are Trying To Lead Another Rally In Energy Futures This Morning
Week 13 - US DOE Inventory Recap
Energy Markets Are Holding Steady To Start Tuesday’s Session
Social Media
News & Views
View AllRefined 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.
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.