Energy Futures Going Nowhere
Energy futures are going nowhere to start Wednesday’s session, as it appears that demand fear continues to outweigh supply fear.
Tuesday’s session was highlighted by a failed rally attempt, that seemed to run out of steam mid-day when US equity markets reversed course from early morning buying to heavy selling. A decline in US manufacturing is getting credit for the selling in both asset classes.
Oil prices did attempt to rally back after the API was reported to show a large draw in US crude stocks in their weekly report released Tuesday afternoon, but as has been the case frequently over the past few weeks, were unable to sustain that brief buying spree. The industry group reported a 5.9 million barrel decline in oil inventories, a 1.7 million barrel draw in distillates, while gasoline stocks increased 2.1 million barrels. The EIA’s weekly report is due out at its normal time this morning.
While normally an afterthought in the weekly inventory reports due to its “island” status in the fuel supply world, PADD 5 activity should be watched closely for signs of what may happen next in the epic gasoline rally taking place along the West Coast. LA spot markets did see their first decline in 7 trading sessions Tuesday, but remain more than $1/gallon over futures and most spot markets in the rest of the country. Today’s inventory report may give a signal if that pullback is a temporary respite, or the first sign that the bubble is about to pop.
RIN values got a boost Tuesday after reports that the White House had forged a compromise between Big Ag and Big Oil groups to reallocate some of the RINs exempted from small refineries. Details are yet to come, and similar rumors have been floated for more than a year, so there’s definitely a bit of wait and see in the market reaction.
Click here to download a PDF of today's TACenergy Market Talk.
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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.