Energy Futures Were Going To Settle Lower

Market TalkMonday, Jul 22 2019
Energy Prices Treading Water

Early Friday afternoon it appeared that energy futures were going to settle lower for a 5th straight day, despite the ongoing tensions with Iran and the world’s most important shipping lane. Then news broke that Iran had seized two British tankers and an immediate rally pushed prices higher for the day and that buying continued when trading resumed Sunday night.

What we know now is that one tanker is still being held by Iran while the British and US weigh their options. There has been no further escalation yet, although Iran has claimed to have detained and executed some US spies (which is an occasional claim made by their regime) which may explain why the gains so far are relatively muted.

In addition to the daily dose of drama from the Strait of Hormuz, Libya was forced to shut its largest oil field over the weekend after a pipeline was sabotaged. That line and field have resumed operations as of this morning.

Baker Hughes reported a 3rd consecutive week of reductions in the active oil rig count last week. The US total dropped to a fresh 17 month low of 779, even though reports suggest US shale drillers are benefiting from the turmoil in the Middle East.

Money managers are jumping back in to bet on higher oil prices, with both Brent and WTI seeing large increases in net-length last week. The new money snapped a 9 week streak of decreases for speculative long bets on Brent crude, and could provide the catalyst for the next technical break to the upside if hedge funds and other large speculators continue to bet that the Middle East tensions will eventually reach a boiling point.

PES filed bankruptcy over the weekend – for the 2nd time in 2 years - a month after the explosion and fire shut down its operations. While there have been local challenges in replacing the East Coast’s largest capacity refinery, so far the impact has not trickled down to other markets outside of Philadelphia as many were predicting a few weeks ago.

Today’s interesting read: Bloomberg is reporting that millions of barrels of Iranian crude are stacking up in Chinese ports, which could be next hot button item in either the trade or tanker wars.

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Pivotal Week For Price Action
Market TalkWednesday, Jun 7 2023

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.

Pivotal Week For Price Action
Pivotal Week For Price Action
Market TalkTuesday, Jun 6 2023

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.