Energy Markets Show Modest Gain On Mixed Economic Data, Strong Demand Estimates

Market TalkFriday, Jul 7 2023
Pivotal Week For Price Action

Energy markets are moving modestly higher Friday morning after another whipsaw session Thursday that saw heavy morning losses following a strong payroll report wiped out in the afternoon thanks in part to some strong demand estimates from the DOE.

After another quiet overnight session, refined product prices jumped immediately following the June federal payrolls report this morning, that showed 209,000 jobs added, which was less than half of yesterday’s big estimate from ADP that spooked equity markets. Adding to the bad news is good news theme, downward revisions took away 110,000 jobs from prior estimates. The headline unemployment rate ticked down to 3.6%, but the U-6 rate (aka the real rate) ticked up to 6.9% marking the highest level in a year. 

The DOE’s weekly status report had the highest weekly gasoline demand estimate in nearly 18 months, as the record-setting travel predictions ahead of the 4th of July seem to have come true.  The big question now for refiners wondering how far their margins will fall from last year’s record levels, is how bad the holiday hangover effect will be on demand this year.  The big tick higher in consumption combined with the 4th straight reduction in total refinery runs pushed US gasoline days of inventory on hand to their lowest levels of the year, and below the 5-year seasonal range.

Diesel demand saw a healthy recovery off of last week’s terrible estimate that put consumption back to COVID lockdown levels but remains below average for this time of year. Despite that soft consumption, diesel stocks remain well below average in most PADDs, which is causing some to start worrying about the next supply crunch if the trucking recession soon comes to an end. The contrary argument is that PADD 5 stocks still don’t account for the major influx of Renewable Diesel in the “total diesel” inventories, so the actual stocks on hand are sure to be much higher than shown.  

Crude oil stocks declined last week even though refinery runs dropped, the EIA released more barrels from the SPR, imports increased and exports decreased. How can that be possible?  The adjustment factor dropped by 1.2 million barrels/day, which essentially means there were 8 million barrels of oil taken away from the figures that can’t be accounted for. This large gap in the reporting helps explain why the agency’s total petroleum demand figures are no longer a figure watched closely by the industry.

Colorado State increased its 2023 Atlantic hurricane forecast Thursday and now calls for an above-average season, but also notes larger than normal uncertainty in its outlook. The new forecast calls for 9 hurricanes from 7, and 4 Major storms, up from 3. For the time being the tropics are quiet in the Atlantic basin, with a healthy amount of Saharan dust helping to limit development after a flurry of activity 2 weeks ago.

California reached a deal with truck manufacturers to ease the states zero emissions goals to better align with the EPA’s standards, and reality. CARB also committed to “Providing no less than 4 years of lead time and at least 3 years of regulatory stability before imposing the zero-emissions requirements. Depending on your definition of regulatory stability, that promise may mean those restrictions will never move forward.

Meanwhile, the EPA’s is proposing to change its GHG reporting requirements to close gaps in that process such as methane releases.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.

Market Talk Update 07.07.2023

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Pivotal Week For Price Action
Market TalkThursday, Feb 29 2024

It's Another Mixed Start For Energy Futures This Morning After Refined Products Saw Some Heavy Selling Wednesday

It's another mixed start for energy futures this morning after refined products saw some heavy selling Wednesday. Both gasoline and diesel prices dropped 7.5-8.5 cents yesterday despite a rather mundane inventory report. The larger-than-expected build in crude oil inventories (+4.2 million barrels) was the only headline value of note, netting WTI futures a paltry 6-cent per barrel gain on the day.

The energy markets seem to be holding their breath for this morning’s release of the Personal Consumption Expenditures (PCE) data from the Bureau of Economic Analysis (BEA). The price index is the Fed’s preferred inflation monitor and has the potential to impact how the central bank moves forward with interest rates.

Nationwide refinery runs are still below their 5-year average with utilization across all PADDs well below 90%. While PADD 3 production crossed its 5-year average, it’s important to note that measure includes the “Snovid” shutdown of 2021 and throughput is still below the previous two years with utilization at 81%.

We will have to wait until next week to see if the FCC and SRU shutdowns at Flint Hills’ Corpus Christi refinery will have a material impact on the regions refining totals. Detail on the filing can be found on the Texas Commission on Environmental Quality website.

Update: the PCE data shows a decrease in US inflation to 2.4%, increasing the likelihood of a rate cut later this year. Energy futures continue drifting, unfazed.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.

Pivotal Week For Price Action
Pivotal Week For Price Action
Market TalkWednesday, Feb 28 2024

It’s Red Across The Board For Energy Prices So Far This Morning With The ‘Big Three’ Contracts All Trading Lower To Start The Day

It’s red across the board for energy prices so far this morning with the ‘big three’ contracts (RBOB, HO, WTI) all trading lower to start the day. Headlines are pointing to the rise in crude oil inventories as the reason for this morning’s pullback, but refined product futures are leading the way lower, each trading down 1% so far, while the crude oil benchmark is only down around .3%.

The American Petroleum Institute published their national inventory figures yesterday afternoon, estimating an 8+ million-barrel build in crude oil inventory across the country. Gasoline and diesel stocks are estimated to have dropped by 3.2 and .5 million barrels last week, respectively. The official report from the Department of Energy is due out at its regular time this morning (9:30 CST).

OPEC’n’friends are rumored to be considering extending their voluntary production cuts into Q2 of this year in an effort to buoy market prices. These output reductions, reaching back to late 2022, are aimed at paring back global supply by about 2.2 million barrels per day and maintaining a price floor. On the flip side, knowledge of the suspended-yet-available production capacity and record US output is keeping a lid on prices.

How long can they keep it up? While the cartel’s de facto leader (Saudi Arabia) may be financially robust enough to sustain itself through reduced output indefinitely, that isn’t the case for other member countries. Late last year Angola announced it will be leaving OPEC, freeing itself to produce and market its oil as it wishes. This marks the fourth membership suspension over the past decade (Indonesia 2016, Qatar 2019, Ecuador 2020).

The spot price for Henry Hub natural gas hit a record low, exchanging hands for an average of $1.50 per MMBtu yesterday. A rise in production over the course of 2023 and above average temperatures this winter have pressured the benchmark to a price not seen in its 27-year history, much to Russia’s chagrin.

Click here to download a PDF of today's TACenergy Market Talk.