Energy Futures Attempting To Rally
For a third straight day, energy futures are attempting to rally. We’ll have to wait and see if the early gains can hold, unlike the previous two sessions in which the early morning gains turned to afternoon losses.
Wednesday’s reversal was driven by some ugly demand numbers reported in the DOE’s weekly status update that led to large builds in refined product inventories. While crude stocks did see a draw – and output was curbed 300,000 barrels/day due to Barry – traders were more focused on the weak consumption figures, which are coming just when US refiners are poised to crank up to maximum output levels, which could make for sloppy supply markets this fall. The report was also seen as a warning sign for equity markets that the US economy may in fact be slowing.
Reports that Iran was now seizing the tanker ship that it had previously towed for repairs is getting some credit for the early bounce in prices this morning, although given the tiny size of the ship (6,200 barrel capacity, vs a 2 million barrel capacity for a VLCC) there won’t be any direct impact on supplies. The move could also weaken Iran’s negotiating position after it’s boats were unable to intercept a “grown up” British ship last week, and had to settle for a small disabled boat now.
Meanwhile, Russia is signaling it would like to join an EU payment channel to help Iran circumvent US sanctions. While that may be just more meddling than any game changer for oil markets, if successful, that payment channel would only mean more oil supplies reaching the global market.
Notes from the DOE Weekly Report:
While the product builds and weak demand figures made the headlines, the export charts below show how in the new era of energy production in the US, a storm like Barry actually has more impact on fuel leaving the US than coming in. As long as the refineries continue to operate (as almost all did during this storm) the disruption in boat traffic is likely to be bearish for product prices.
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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.