Energy Futures Moving Higher For 2nd Day
Energy futures are moving higher for a 2nd day, and most contracts in the petroleum complex have now wiped out Monday’s heavy losses as the uncertainty over Venezuela and optimism in US stocks both seem to be helping encourage buyers.
While most of the oil market chatter continues to revolve around Venezuela, the correlation between energy and equity markets continues to be strong, so it seems the early boost in stocks on the backs of some positive earnings reports is aiding in the bounce in petroleum futures.
Unlike when sanctions were placed on Iran last year, Saudi Arabia is not rushing in to offset any potential lost production from Venezuela, at least according to some reports. Whether or not that holds true, and how much extra oil may be needed, is just a guess at this point, and anyone who says differently is probably trying to sell you something. Assuming there will be some drop off in heavy oil supplies for Gulf Coast refiners, that’s just more bad news as most are already struggling with an excess of gasoline while trying to maximize their diesel output.
Speaking of which, diesel prices led the move higher Tuesday, ending the day up around 6 cents after several utilities from the Great Lakes region to the East Coast notified customers of natural gas curtailments due to the winter storm, sending buyers scrambling for heating oil. The rush may prove short-lived however as above average temperatures are forecast for the weekend, which may explain why natural gas futures continue to slide even while spot supplies are tight in several markets.
The API was said to report another week of inventory builds across the board, with crude and gasoline stocks up more than 2 million barrels, while distillates were up just over 200,000 barrels on the week. The DOE’s weekly status report is due out at its normal time this morning, and based on the strength in basis values across many spot markets since bottoming out early in January, (not to mention the weak margin environment) it seems likely we’ll see refinery run rates cut back further in this report.
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Week 48 - US DOE Inventory Recap
The API Reported Gasoline Inventories Dropped By 898,000 Barrels Last Week
Gasoline and oil prices are attempting to rally for a 2nd straight day, a day ahead of the delayed OPEC meeting, while diesel prices are slipping back into the red following Tuesday’s strong showing.
The API reported gasoline inventories dropped by 898,000 barrels last week, crude inventories declined by 817,000 barrels while distillates saw an increase of 2.8 million barrels. Those inventory stats help explain the early increases for RBOB and WTI while ULSD is trading lower. The DOE’s weekly report is due out at its normal time this morning.
A severe storm on the Black Sea is disrupting roughly 2% of the world’s daily oil output and is getting some credit for the bounce in futures, although early reports suggest that this will be a short-lived event.
Chevron reported that its Richmond CA refinery was back online after a power outage Monday night. San Francisco spot diesel basis values rallied more than a dime Tuesday after a big drop on Monday following the news of that refinery being knocked offline.
Just a few days after Scotland’s only refinery announced it would close in 2025, Exxon touted its newest refinery expansion project in the UK Tuesday, with a video detailing how it was ramping up diesel production to reduce imports and possibly allow for SAF production down the road at its Fawley facility.
Ethanol prices continue to slump this week, reaching a 2-year low despite the bounce in gasoline prices as corn values dropped to a 3-year low, and the White House appears to be delaying efforts to shift to E15 in an election year.
Click here to download a PDF of today's TACenergy Market Talk.
Values For Space On Colonial’s Main Gasoline Line Continue To Drop This Week
The petroleum complex continues to search for a price floor with relatively quiet price action this week suggesting some traders are going to wait and see what OPEC and Friends can decide on at their meeting Thursday.
Values for space on Colonial’s main gasoline line continue to drop this week, with trades below 10 cents/gallon after reaching a high north of 18-cents earlier in the month. Softer gasoline prices in New York seems to be driving the slide as the 2 regional refiners who had been down for extended maintenance both return to service. Diesel linespace values continue to hold north of 17-cents/gallon as East Coast stocks are holding at the low end of their seasonal range while Gulf Coast inventories are holding at average levels.
Reversal coming? Yesterday we saw basis values for San Francisco spot diesel plummet to the lowest levels of the year, but then overnight the Chevron refinery in Richmond was forced to shut several units due to a power outage which could cause those differentials to quickly find a bid if the supplier is forced to become a buyer to replace that output.
Money managers continued to reduce the net length held in crude oil contracts, with both Brent and WTI seeing long liquidation and new short positions added last week. Perhaps most notable from the weekly COT report data is that funds are continuing their counter-seasonal bets on higher gasoline prices. The net length held by large speculators for RBOB is now at its highest level since Labor Day, at a time of year when prices tend to drop due to seasonal demand weakness.
Click here to download a PDF of today's TACenergy Market Talk.