Energy Futures Give Back Half Of Monday Gains

Market TalkWednesday, Sep 18 2019
Quiet Start To End A Wild Week

Energy futures gave back roughly half of their Monday gains (which were the largest daily increases in more than 10 years) during Tuesday’s session, after Saudi Arabian officials said that half of its output had already been restored, and that the remainder would be back online by the end of the month. In addition, there were reports that the Saudi’s were planning on ramping up production to 12 million barrels/day by November, compared to a self-restricted 9.8 million barrels/day prior to the attacks, which could mean the Kingdom is once again ready to use its oil weapon to teach Iran a lesson.

Whether or not the claims of increasing production to new record highs are even physically possible is a matter that will be hotly debated in the coming weeks. That said, if economic war-far is chosen over conventional methods of retaliation for the weekend attacks, that certainly could be bearish for prices, as the Saudi’s production restraint was seen as the main driver holding up crude oil prices in an oversupplied environment the past few years.

That negative sentiment continued overnight with another wave of selling across the barrel, aided by inventory increases, but perhaps tempered by uncertainty surrounding the FED.

The API was said to show builds across the board, with distillates up 2 million barrels on the weeks, while gasoline stocks increased by 1.6 million barrels and crude oil inventories grew by 592,000 barrels. The DOE’s weekly report is due out at 9:30 central.

FED coin-flip: The CME’s Fedwatch tool shows futures are pricing in close to equal odds of a 25 point rate cut vs no action today, compared to a month ago when another cut was given 100% odds of happening.

Tropical Storm Imelda formed and made landfall near the heart of refining country Tuesday. That storm is bringing flooding to the Houston area, but at this point there are no reports of refinery shutdowns or other supply disruptions. Fortunately it seems we’ve dodged another tropical bullet as that system just didn’t have enough time over open water to develop into a more severe threat. No time to rest however as Tropical Storm Jerry also has formed over the Atlantic and is expected to reach hurricane strength Friday. Most models continue to favor a north-east turn next week that will keep this system at sea, but there is still a potential threat for Florida and the SE that we’ll need to keep an eye on.

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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.