Energy Futures Sent Sharply Higher
Improving outlooks for both the President’s health and a congressional stimulus package, and yet another hurricane threat staring down refining country are combining to send energy futures sharply higher to start the week with several contracts up around five percent in the early going.
RBOB gasoline futures are once again leading the action, up nearly six cents so far today, wiping out the bulk of last week’s losses. The big bounce is another victory for the sideways trading range as technical support held yet again, and suggests we’ll see more sideways action in October when last week it was looking like we could see a price collapse.
The break in storm activity is officially over. Tropical Storms Gamma and Delta were both named, and Delta appears like it could be a hurricane pointing for Louisiana this weekend. The current forecast cone keeps Houston out of the possible range, but Pt. Arthur and Lake Charles are still possibilities, and the current path has this system heading directly over New Orleans, which has already narrowly avoided a couple direct hits earlier in the season. The P66 Alliance refinery chose to move up maintenance after shutting ahead of Sally, so it is already closed, and we’re likely to see other precautionary closures later this week if this path holds.
Baker Hughes reported six more oil rigs came online last week, five in the Permian and one in the Bakken, which puts the total U.S. count at 189, its highest level since mid-June. While that’s a bit of positive news for the struggling industry, keep in mind the count is exactly 600 rigs less than it was this same week a year ago.
Money managers are looking more bearish for oil prices this week, cutting back long positions in WTI and Brent, and adding new shorts to WTI to drive down the net length held by the large speculative category of trader. Net length in RBOB continues to tick up in a counter-seasonal fashion, as it appears funds are currently willing to bet that COVID recovery factors will be enough to offset the typical winter slump in driving demand.
A Reuters article over the weekend notes that the rush to convert traditional petroleum refineries to renewable diesel facilities in the U.S. may mean more product exports to Canada, as facilities north of the border won’t be able to meet the country’s new fuel standards for several more years.
Remember a year ago when trade talks were the big story? A WSJ article notes how the U.S./China trade deal is driving more oil exports and eating into the Saudi’s market share.
Click here to download a PDF of today's TACenergy Market Talk.
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Crude Oil Inventories Climbed Above Year-Ago Levels For The First Time In 2024
Sell by May then go away.
The old trading adage looked good for energy markets in 2024 as the new month started off with the biggest daily sell-off of the year so far. WTI and ULSD contracts are now in “rally or else” mode on the charts with sharply lower prices a strong possibility now that technical support layers have broken down. RBOB doesn’t look quite as bearish on the charts, but seasonal factors will now act as a headwind as we’re well into the spring peaking window for gasoline prices, and we’ve already seen a 27 cent drop from the highs. If RBOB can hold above $2.50 there’s a chance to avoid a larger selloff, but if not, a run towards $2.20 for both gasoline and diesel looks likely in the months ahead.
The selling picked up steam following the DOE’s weekly report Wednesday, even though the inventory changes were fairly small. Crude oil inventories continue their steady build and climbed above year-ago levels for the first time in 2024. Demand for refined products remains sluggish, even after accounting for the RD consumption that’s still not in the weekly reports, and most PADDs are following a typical seasonal inventory trend. The Gulf Coast saw a healthy build in diesel inventories last week as the export market slowed for a 3rd straight week. Refinery runs dipped modestly last week following a handful of upsets across the country, but overall rates remain near normal levels for this time of year.
The Transmountain pipeline expansion began operations yesterday, completing a 12-year saga that has the potential to materially change refining economics for plants in the US that relied heavily on discounted Canadian crude to turn profits over the past decade.
The P66 Borger refinery reported another operational upset Monday that lasted a full 24 hours impacting a sulfur recovery unit. Last week the company highlighted how the plant’s fire department helped the surrounding area when the largest wildfire in state history came within feet of the facility.
The EPA approved a new model to determine life cycle carbon intensity scores this week, which cracks open the door for things like ethanol to SAF, which were previously deemed to not reduce emissions enough to qualify for government subsidies. The new model would require improved farming techniques like no-till, cover crop planting and using higher efficiency nitrogen fertilizer to limit the damage done by farms that no longer rotate crops due to the ethanol mandates. Whether or not the theoretical ability to produce SAF comes to fruition in the coming years thanks to the increased tax credit potential will be a key pivot point for some markets that find themselves with too much RD today, but could see those supplies transition to aviation demand.
The FED continues to throw cold water on anyone hoping for a near term cut in interest rates. The FOMC held rates steady as expected Wednesday, but also highlighted the struggles with stubbornly high inflation. The CME’s Fedwatch tool gave 58% odds of at least one rate cut by September before the announcement, and those odds have slipped modestly to 54% this morning.
Week 17 - US DOE Inventory Recap
The Energy Complex Is Trading Modestly Lower So Far This Morning With WTI Crude Oil Futures Leading The Way
The energy complex is trading modestly lower so far this morning with WTI crude oil futures leading the way, exchanging hands $1.50 per barrel lower (-1.9%) than Tuesday’s settlement price. Gasoline and diesel futures are following suit, dropping .0390 and .0280 per gallon, respectively.
A surprise crude oil build (one that doesn’t include any changes to the SPR) as reported by the American Petroleum Institute late Tuesday is taking credit for the bearish trading seen this morning. The Institute estimated an increase in crude inventories of ~5 million barrels and drop in both refined product stocks of 1.5-2.2 million barrels for the week ending April 26. The Department of Energy’s official report is due out at it’s regular time (9:30 CDT) this morning.
The Senate Budget Committee is scheduled to hold a hearing at 9:00 AM EST this morning regarding a years-long probe into climate change messaging from big oil companies. Following a 3-year investigation, Senate and House Democrats released their final report yesterday alleging major oil companies have internally recognized the impacts of fossil fuels on the climate since as far back as the 1960s, while privately lobbying against climate legislation and publicly presenting a narrative that undermines a connection between the two. Whether this will have a tangible effect on policy or is just the latest announcement in an election-yeardeluge is yet to be seen.
Speaking of deluge, another drone attack was launched against Russian infrastructure earlier this morning, causing an explosion and subsequent fire at Rosneft’s Ryazan refinery. While likely a response to the five killed from Russian missile strikes in Odesa and Kharkiv, Kyiv has yet to officially claim responsibility for the attack that successfully struck state infrastructure just 130 miles from Moscow.
The crude oil bears are on a tear this past week, blowing past WTI’s 5 and 10 day moving averages on Monday and opening below it’s 50-day MA this morning. The $80 level is likely a key resistance level, below which the path is open for the American oil benchmark to drop to the $75 level in short order.
Click here to download a PDF of today's TACenergy Market Talk.