Energy Markets Are Starting The Week On A Quiet Note
Energy markets are starting the week on a quiet note as the market seems to be trying to figure out the latest geopolitical dramas like a Russian debt default, more sanctions (that could include a Russian oil price cap) and the restart of negotiations with Iran.
Hedge funds look like they may be throwing in the towel on the petroleum price rally, with money managers making large increases on short positions and reducing their long bets last week. The net length held by the large speculators in WTI dropped to a 2 year low last week, while open interest for the contract reached a 5 year low. While funds pulling out could help explain the price pullback we’ve seen in the back half of June, this change does also leave the complex susceptible to a sharp rally if these new short positions are forced to cover.
Activity in the tropics is increasing after a relatively quiet start to the Atlantic hurricane season. The NHC is tracking 3 potential storm systems this week, and gives high odds that Bonnie will be named in the next few days. The good news for refining country is that storm looks like it will stay well south of the Gulf of Mexico. Another potential system is being tracked off the Texas coast, but so far it’s given low odds of becoming much more than a rain maker that would be welcomed by drought stricken areas.
Baker Hughes reported 10 more oil rigs and 3 more natural gas rigs were put to work in the US last week. That increase brings the oil rig count to a fresh 2 year high but there are still 99 more rigs to add before the total reaches its pre-pandemic levels.
If you’re still wondering why it’s taking so long for oil production to ramp up with prices north of $100, read the Dallas FED’s Energy Survey that was released last week. The report shows that while production activity is at a 6 year high, costs and lead time for materials are both reaching records as supply chain bottlenecks continue to disrupt operations. While supply chain issues are slowing the pace of production, a FT article notes that the US may be the ultimate winner of the energy war.
Click here to download a PDF of today's TACenergy Market Talk.
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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.