Energy Futures Lacking Conviction To Make Next Big Push
Energy futures continue to trade within striking distance of 5-month highs this morning, but seem to be lacking conviction to make the next big push. Gasoline prices are once again trying to pull the rest of the complex higher, and are currently less than a penny away from setting new highs for the year, and ending talks about the seasonal price peak being behind us.
Tomorrow is Good Friday, one of 3 holidays of the year in which futures trading will be shut completely so when trading halts at 4pm today it will not reopen until Sunday at 5pm. Spot markets will also not be assessed, so rack prices posted tonight will carry through the weekend.
Because the West Coast (PADD 5) is largely isolated from the rest of the country due to both product specifications and logistical constraints, its inventory levels tend to have little impact on futures trading (since physical delivery for RBOB and ULSD contracts is in New York). Looking at the PADD 5 stocks and output levels which are both at multi-year lows, it’s easy to see why gasoline prices along the left coast are trading 50-60 cents higher than in most other major hubs.
Ominous sign or bump in the road? Total diesel demand in the US dropped sharply for a 4th consecutive week according to the DOE’s estimate. At 3.3 million barrels/day, compared to a 5 year seasonal average of 4.1 million barrels, total consumption is at a level usually reserved for the Holiday season when many trucks are taken off the road. This could be the most telling sign yet of a pending economic slowdown in the US. It could also be a sign that planting activity has been delayed by weather this year, or just another sign of how challenging it is for anyone – even a government agency – to gauge consumption in real-time.
Excerpt from the FED’s “Beige Book” on economic activity in the energy sector:
Energy
Energy activity grew modestly, and outlooks improved. Production rose at a slow pace, but drilling activity continued to slide as firms reined in spending, including orders for new equipment. Oilfield services firms and equipment suppliers noted surplus capacity for fracking services and slim margins. Availability of additional pipeline capacity out of the Permian Basin has propped up crude oil priced in West Texas relative to the Gulf Coast. Firms responding to the first-quarter Dallas Fed Energy Survey, on average, expect the WTI oil price to be around $60 per barrel at yearend 2019--above the reported average breakeven price to profitably drill new wells. Uncertainty in price outlooks declined partly because contacts were more confident that OPEC would sustain production cuts in the second half of the year.
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 All
Refined 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.