Energy Markets Survive Heavy Wave Of Selling

Market TalkThursday, May 30 2019
Energy Markets Survive Heavy Wave Of Selling

The back and forth continues for energy markets after surviving another heavy wave of selling Wednesday, as traders react to the weekly inventory reports and a slew of minor supply disruptions across the midcontinent due to storms.

The API reported a draw in crude oil stocks of 5.3 million barrels, and a drop in distillates of 2.1 million barrels, while gasoline stocks increased by 2.7 million barrels. The overnight price reaction seems to match that report with WTI trying to hold onto gains, while RBOB futures try to drag the complex lower. The DOE/EIA’s report is due out at 10am central today.

More pipeline, refinery and terminal issues are popping up around the US due to the rash of severe storms that continue to sweep across the country. Wednesday the Explorer pipeline reported plans to shut part of its line near St. Louis due to flooding, while numerous terminals in the Midwest were said to be either running out of products, or forced to close directly or indirectly due to the storms. In some cases, power losses are to blame, while in others there are suggestions that the disruptions on crude pipelines and takeaway capacity from barges is forcing refineries from IL to LA to cut runs.

Interesting timing: A new note from the EIA this morning details the race to build new oil pipeline capacity in the Gulf Coast and Midwestern regions.

Interest rates took credit for much of the pessimism Thursday that had both equity and energy prices selling off sharply early in the day. The 10 year treasury yield dropped to its lowest level in nearly 2 years, while the treasury yield curves continued to get steeper. Bulls will shrug off the yield curve warning – suggesting that metric has predicted 7 of the last 3 recessions – while bears see this as a clear sign that investors are taking money off the table and buying up treasuries in a flight to safety.

Meanwhile, the US economy continues to keep chugging along with the 2nd look at Q1 GDP readings holding steady north of 3% this morning, which seems to have given both equities and energy futures a small boost off their overnight lows.

Reports that the US was blaming Iranian mines for the sabotage on 4 tankers in the Gulf of Oman earlier in May may have stirred markets up briefly during Wednesday’s afternoon bounce, but it appears the market is largely shrugging off that news as both sides seem to have limited their saber rattling in recent days.

CLICK HERE for a PDF of today's charts

Energy Markets Survive Heavy Wave Of Selling gallery 0

News & Views

View All
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.