Energy Futures Sliding Into Red
Energy futures are sliding into the red this morning, in what appears to be a bit of profit taking after a strong spring breakout rally pushed prices to new 4 month highs in the past 24 hours. Some bearish elements in the IEA’s monthly oil market report could also be to blame for the overnight reversal.
RBOB gasoline futures topped out at $1.8822 in Thursday’s session and have dropped about a nickel since that time, even though NY Harbor basis values continue to strengthen, as refinery downtime is seen depleting the excess inventory seen earlier in the year. WTI meanwhile has dropped almost a dollar reaching $58.95 overnight. It will take additional drops of that size before this latest sell-off threatens the trend started when prices broke out earlier in the week, but short term technical indicators are showing signs of topping out, so a more meaningful pullback may be in order.
The IEA’s monthly report noted that world demand for oil slowed sharply in the fourth quarter of 2018, but held its estimates for 2019 steady. The agency also noted how OPEC’s production cuts have served to increase the total “spare capacity” available, which will cushion the impact of Venezuela’s collapse.
While petroleum futures have been reaching 4 month highs this week, RIN values have traded down to 4 month lows after the EPA released approved 5 more small refinery exemptions to the RFS in 2017. While the retroactive nature of those exemptions doesn’t directly impact current blending activity, it does send a clear signal that the agency is not changing its stance on granting more exemptions since a federal court ruling in 2017 that found earlier rejections of exemptions were illegal, despite subsequent lawsuits filed on behalf of agricultural groups. Needless to say, biofuel producers don’t seem thrilled with the news.
Today’s interesting read: The EIA’s note on how the industry is handling the growing demand for hydrogen at refineries to strip sulfur from crude oil to meet new cleaner fuel standards.
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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.