Energy Futures Chop Back And Forth

Market TalkTuesday, Jul 9 2019
Heavy Selling In Energy Futures

Energy futures continue to chop back and forth, struggling to find direction with a variety of geopolitical & weather issues stoking conflicting concerns for both supply & demand.

Iran: The saber rattling continues as Iran broke its nuclear agreement with Europe, and threatened to retaliate against British ships, after one of its own was arrested on the way to Syria last week.

China: The Trade Truce brought cheer to equity markets last week, but will an arms sale to Taiwan threaten that progress?

Refiners: The Philadelphia-area supply situation seems to be calming down in the wake of the sudden shutdown of PES. Gulf Coast refiners meanwhile are coming back online after an unusually busy spring maintenance season, and should see peak rates over the next couple of months. There were reports that the Irving refinery in New Brunswick was forced to shut an FCC unit last week, but so far the market seems to have largely shrugged off that news, even though the plant is a key supplier to the US East Coast, which is now more dependent on imports than ever.

Weather: The unusual system sitting over land in the South Eastern US is expected to become a tropical storm this weekend, with refineries in Louisiana and Texas in its path. While the winds may not reach hurricane force, rain will be a threat to both supply & demand in the coming week.

The EIA reported yesterday that US crude production surpassed 12 million barrels/day for the first time ever in April, just 8 months after breaking the 11 million barrel/day mark for the first time over an entire month. A Wall Street Journal report this morning highlights why the challenges of drilling oil wells close to one another may mean that US production may peak much sooner than most current forecasts.

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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.