A New Read On Inflation, That Continues To Hold Near 40 Year Highs Sparked A Wave Of Heavy Selling Pressure

Market TalkThursday, Feb 10 2022
Pivotal Week For Price Action

Energy markets were trading higher for a 2nd day, moving the complex further away the technical support that threatened an end to the 2 month rally on Monday. 

Some bullish fundamental data from the weekly DOE report and OPEC’s monthly report seemed to be encouraging buyers to continue to step in after the big selloff earlier in the week

A new read on inflation, that continues to hold near 40 year highs looks like it sparked a wave of heavy selling pressure into the complex shortly after 8am central, knocking refined products 3-4 cents below their overnight highs, which should make for some volatile action to end the week.

OPEC increased its global demand estimates for the year, and lowered its supply estimates as the end of Omicron and a tick up in industrial activity are expected to drive consumption while supply networks will need longer to sort through their logistical bottlenecks. The cartel’s oil production continued to increase, but at a slower pace than had been forecast as declines in Venezuela, Libya and Iraq offset the increases from Saudi Arabia, Nigeria and the UAE.

Cause & Effect: While the weekly moves in the DOE report weren’t particularly notable, the historical perspective makes a strong argument for the strong prices we’re seeing in several markets. 

US Crude oil inventories reached a 3.5 year low last week, and production continues to be slow to return, both of which seem to be aiding the move back above $90 for WTI this morning. 

Gasoline inventories made their first decline in 6 weeks as demand surged ahead of the winter storm. If in fact gasoline stocks are making the turn from winter build to spring drawdown, they’re doing so from a much lower level than the past few years, and with refining capacity much lower than it was pre COVID shutdowns, the early draw puts the supply network at risk of more challenges as we approach the driving season. 

Want to see why Midwestern diesel prices have been trading 20 cents or more below their coastal counterparts? Take a look at the diesel inventory charts below where PADD 2 is the only region in the country with stocks that aren’t below their 5-year seasonal range. Midwest refiners are contributing to the excess, with run rates well above their seasonal norms, and 10% above last year’s rates. 

This coming week marks the 1 year anniversary since the biggest disruption in refinery runs on record, and while we did see a handful of refinery shutdowns from last week’s storm, the impact will pale in comparison to the dramatic drops you can see on the refinery run charts below.

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

Market Talk Update 02.10.22

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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.