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 TalkFriday, Sep 29 2023

The Energy Bulls Are On The Run This Morning, Lead By Heating And Crude Oil Futures

The energy bulls are on the run this morning, lead by heating and crude oil futures. The November HO contract is trading ~7.5 cents per gallon (2.3%) higher while WTI is bumped $1.24 per barrel (1.3%) so far in pre-market trading. Their gasoline counterpart is rallying in sympathy with .3% gains to start the day.

The October contracts for both RBOB and HO expire today, and while trading action looks to be pretty tame so far, it isn’t a rare occurrence to see some big price swings on expiring contracts as traders look to close their positions. It should be noted that the only physical market pricing still pricing their product off of October futures, while the rest of the nation already switched to the November contract over the last week or so.

We’ve now got two named storms in the Atlantic, Philippe and Rina, but both aren’t expected to develop into major storms. While most models show both storms staying out to sea, the European model for weather forecasting shows there is a possibility that Philippe gets close enough to the Northeast to bring rain to the area, but not much else.

The term “$100 oil” is starting to pop up in headlines more and more mostly because WTI settled above the $90 level back on Tuesday, but partially because it’s a nice round number that’s easy to yell in debates or hear about from your father-in-law on the golf course. While the prospect of sustained high energy prices could be harmful to the economy, its important to note that the current short supply environment is voluntary. The spigot could be turned back on at any point, which could topple oil prices in short order.

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

Pivotal Week For Price Action
Market TalkThursday, Sep 28 2023

Gasoline And Crude Oil Futures Are All Trading Between .5% And .8% Lower To Start The Day

The energy complex is sagging this morning with the exception of the distillate benchmark as the prompt month trading higher by about a penny. Gasoline and crude oil futures are all trading between .5% and .8% lower to start the day, pulling back after WTI traded above $95 briefly in the overnight session.

There isn’t much in the way of news this morning with most still citing the expectation for tight global supply, inflation and interest rates, and production cuts by OPEC+.

As reported by the Department of Energy yesterday, refinery runs dropped in all PADDs, except for PADD 3, as we plug along into the fall turnaround season. Crude oil inventories drew down last week, despite lower runs and exports, and increased imports, likely due to the crude oil “adjustment” the EIA uses to reconcile any missing barrels from their calculated estimates.

Diesel remains tight in the US, particularly in PADD 5 (West Coast + Nevada, Arizona) but stockpiles are climbing back towards their 5-year seasonal range. It unsurprising to see a spike in ULSD imports to the region since both Los Angeles and San Francisco spot markets are trading at 50+ cent premiums to the NYMEX. We’ve yet to see such relief on the gasoline side of the barrel, and we likely won’t until the market switches to a higher RVP.

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