Energy Futures Moving In Opposite Directions
A conflicting inventory report has energy futures moving in opposite directions to start Wednesday’s session, a pattern this week in which gasoline prices tend to want to resist the pull of crude oil and diesel prices, while the entire complex moves back and forth waiting on the next bit of news from Iran, China or the FED.
The API was said to show a large crude oil draw of almost 11 million barrels last week – which was widely expected as producers shut in ahead of Hurricane Barry – which is helping oil contracts find a bid this morning. Products saw increases of 4.4 million barrels for gasoline, which seems to be pushing RBOB futures lower and 1.4 million barrels for diesel. The EIA’s weekly status report is due out at its normal time this morning.
Tuesday’s session started out in a mirror image of today’s start with RBOB moving higher while the other contracts moved lower. By the end of the day all contracts were in the green, aided by a strong day for equity markets, and reports that the US may have destroyed more than one Iranian drone last week. Besides that report, there do not appear to have been any new developments in the Persian Gulf drama, which is keeping buyers at bay for now.
Many headlines for both equity and energy prices continue to focus on what the FOMC will do with interest rates next week. The CME’s fedwatch tool shows that traders are giving a 100% probability of a rate cut with 25pts vs 50 the hot debate. The Dallas FED meanwhile released its Permian Basin Economic indicator report this week, showing that while Texas’s unemployment rate just reached an all-time low, the rate in the Permian is increasing as rig counts drop. It’s worth noting that despite the drop in rig counts, production levels continue to climb due to an overhang of Drilled but uncompleted wells.
The EIA continues to highlight the changing landscape of global oil trade this week, with a note this morning showing how Saudi Arabia is sending less crude to the US, and more to Asian nations as US production swells. While China’s oil imports are a hot topic this week, the country is also increasing its export quota for refined products as the country’s refining capacity continues to grow.
A couple of other interesting reads today:
Reuters takes a look at OPEC’s changing metric for considering a balanced global oil market.
Bloomberg interviews a ship captain as he steers an oil tanker through the Strait of Hormuz.
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Wholesale Gasoline Prices Across Most Of The US Reached Their Lowest Levels In 2-Years Thursday
Wholesale gasoline prices across most of the US reached their lowest levels in 2-years Thursday, after the morning recovery rally fizzled in the afternoon. RBOB gasoline futures dipped below the $2 mark briefly, before settling just above it, while cash prices in several major markets dropped below $1.80 for the first time since December 2021, while crude oil and diesel prices reached fresh 6-month lows.
The bulls are giving it another go this morning, pushing futures up 5-cents for gasoline and 6- cents for diesel, trying to snap the streak of 6-straight daily losses for ULSD, although we’ll need to see products double their early gains to erase the weekly decline.
Energy prices didn’t react much initially to the November Payroll report that estimated 199,000 jobs were added during the month, while the official unemployment rate dipped to 3.7% from 3.9% and the U-6 rate dropped to 7% from 7.2%. Equity futures moved modestly lower immediately following that report as labor market resilience throws cold water on recent hopes for interest rate cuts, but as has often been the case for several months now, energy prices are managing to shrug off the move in stocks.
Big negative basis values continue to be the theme across the Gulf Coast and Mid-Continent, with USGC, Group 3 and Chicago all trading at 20+ cent discounts to futures for both gasoline and diesel. Those negative values are weighing on refining margins with USGC crack spreads approaching their lowest levels in 2 years, which will almost certainly curtail some refinery run rates through the winter months. East Coast refiners meanwhile are finding themselves in a strong position as shipping bottlenecks keep PADD 1 inventories low and their crack spreads remain in the mid $20/barrel range despite the recent pull back in futures.
The long-awaited Dangote refinery is reportedly receiving its first cargo of crude oil today. That new 650mb/day refinery would be the world’s largest single train refinery, but is already years behind schedule, and many still doubt its ability to run anywhere near capacity. We’ve already seen the impact Kuwait’s 615mb/day Al Zour refinery can have on markets across the Atlantic basin, so whether or not the Nigerian facility can ramp up run rates could have a major influence on product prices next year.
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West Coast Gasoline Inventories Dropped Sharply Last Week And Are Now Holding Below Their 5-year Seasonal Range
Energy futures are bouncing this morning as buyers are finally stepping in after RBOB futures touched a 2-year low Wednesday, while WTI and ULSD both hit their lowest levels in 5 months. There are headwinds both fundamentally and technically, but so far, the market isn’t acting like a collapse is imminent and as the table below shows this is right about the time when gasoline prices bottomed out the past two years.
Saudi Arabia and Russia released a joint statement this morning, following Vladimir Putin’s trip to the Kingdom, urging OPEC & friends to join their output cut agreement, which takes the risk of a price war that could send prices plunging (as we’ve seen twice in the past decade) off the table for now and seems to be contributing to WTI climbing back above the $70 mark and Brent getting back above $75.
The DOE reported a healthy bounce back in fuel demand estimates after the annual Thanksgiving holiday hangover, but that wasn’t enough to prevent refined product inventories from continuing to build as refiners continue to return from maintenance and increase run rates. The builds in gasoline inventories particularly suggest it could be a tough winter for some refiners who are already having some challenges clearing their extra barrels.
The exception on gasoline comes in PADD 5. West Coast gasoline inventories dropped sharply last week and are now holding below their 5-year seasonal range, which is dramatically lower than year-ago levels which set the top end of that range. Those tight stocks help explain why West Coast values are the most expensive in the country by a wide margin and leave little cushion to deal with unplanned maintenance which helps explain the jump in CARBOB basis values this week.
On the diesel side of the barrel, the recent themes of tight supplies on the East Coast, ample supply in the Midwest and Gulf Coast, and a Wild Card on the west coast since we don’t see Renewable Diesel inventories in the weekly figures continues. Take a look at the PADD 2 gasoline and diesel charts below and it’s easy to understand why we’re seeing cash prices in both Group 3 and Chicago approaching multi-year lows with 20-30 cent discounts to futures becoming the rule rather than the exception.
The market seemed to shrug off the drop in total US crude oil stocks, as Cushing OK stocks increased for a 7th straight week, and the decline was largely driven by the largest negative adjustment value on record, which went from a positive 1.2 million barrels/day last week to negative 1.4 million barrels/day this week. The EIA has done a lot of work trying to fix the bugs in its report system and to better define what exactly it’s reporting, but clearly there’s still more work to be done.