Energy Prices Are Pulling Back Slightly After A Furious 2 Day Rally
Energy prices are pulling back slightly after a furious 2 day rally that added almost 60 cents to diesel prices thanks to a combination of bullish fundamental and technical factors. RBOB prices meanwhile have “only” rallied 30 cents this week before this morning’s pullback, while WTI added more than $10/barrel since Monday’s lows. Yesterday’s DOE report gave plenty more examples of the tight supply for refined products across much of the US, even though crude oil stocks are seeing large increases.
A little less than half of the big build in crude oil inventories reported yesterday can be attributed to the ongoing drawdown of the Strategic Petroleum Reserve (SPR) which pumped out another 4 million barrels last week, and if the announced plan comes to fruition, that should increase to 7 million barrels every week through the summer.
Unfortunately, the crude coming out of the SPR can’t go directly into your fuel tank, and didn’t prevent diesel stocks from dropping to their lowest levels in more than 8 years. Gasoline stocks also had a sizeable draw during the week, dropping well below average levels for this time of year.
A big question mark left by the DOE report: Are we already seeing the early stages of demand destruction with diesel implied demand dropping for a 3rd straight week, helping diesel days of supply to build, even though inventories and diesel production both saw big declines on the week? One thing seems clear looking at the refinery output charts below, US refiners have been doing whatever possible to maximize Jet Fuel production over the past couple of weeks, which seems to be a big contributor to the drop in ULSD production.
Gasoline demand meanwhile is holding steady with year-ago levels, ramping up as we approach the driving season, but holding well below the figures we saw prior to COVID. In general gasoline supplies are on the low end of their seasonal range, and relatively healthy compared to diesel, but the East Coast (PADD 1) is the exception to that rule, with inventories well below the seasonal range, and helping to explain the ongoing terminal outages scattered across the region.
Refinery runs dipped for the first time in 5 weeks as a handful of weather disruptions and maintenance events (some planned, some not) continued to hamper facilities seeking to capitalize on the best potential margins in a decade.
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View AllEnergy Prices Fluctuate: Chinese Imports Surge, Saudi Arabia Cuts Output and Buys Golf
Energy prices continue their back-and-forth trading, starting Wednesday’s session with modest gains, after a round of selling Tuesday wiped out the Saudi output cut bounce.
A surge in China’s imports of crude oil and natural gas seem to be the catalyst for the early move higher, even though weak export activity from the world’s largest fuel buyer suggests the global economy is still struggling.
New tactic? Saudi Arabia’s plan to voluntarily cut oil production by another 1 million barrels/day failed to sustain a rally in oil prices to start the week, so they bought the PGA tour.
The EIA’s monthly Short Term Energy Outlook raised its price forecast for oil, citing the Saudi cuts, and OPEC’s commitment to extend current production restrictions through 2024. The increase in prices comes despite reducing the forecast for US fuel consumption, as GDP growth projections continue to decline from previous estimates.
The report included a special article on diesel consumption, and its changing relationship with economic activity that does a good job of explaining why diesel prices are $2/gallon cheaper today than they were a year ago.
The API reported healthy builds in refined product inventories last week, with distillates up 4.5 million barrels while gasoline stocks were up 2.4 million barrels in the wake of Memorial Day. Crude inventories declined by 1.7 million barrels on the week. The DOE’s weekly report is due out at its normal time this morning.
We’re still waiting on the EPA’s final ruling on the Renewable Fuel Standard for the next few years, which is due a week from today, but another Reuters article suggests that eRINs will not be included in this round of making up the rules.
Click here to download a PDF of today's TACenergy Market Talk.
Week 23 - US DOE Inventory Recap
Energy Prices Retreat, Global Demand Concerns Loom
So much for that rally. Energy prices have given back all of the gains made following Saudi Arabia’s announcement that it would voluntarily withhold another 1 million barrels/day of oil production starting in July. The pullback appears to be rooted in the ongoing concerns over global demand after a soft PMI report for May while markets start to focus on what the FED will do at its FOMC meeting next week.
The lack of follow through to the upside leaves petroleum futures stuck in neutral technical territory, and since the top end of the recent trading range didn’t break, it seems likely we could see another test of the lower end of the range in the near future.
RIN prices have dropped sharply in the past few sessions, with traders apparently not waiting on the EPA’s final RFS ruling – due in a week – to liquidate positions. D6 values dropped to their lowest levels in a year Monday, while D4 values hit a 15-month low. In unrelated news, the DOE’s attempt to turn seaweed into biofuels has run into a whale problem.
Valero reported a process leak at its Three Rivers TX refinery that lasted a fully 24 hours. That’s the latest in a string of upsets for south Texas refineries over the past month that have kept supplies from San Antonio, Austin and DFW tighter than normal. Citgo Corpus Christi also reported an upset over the weekend at a sulfur recovery unit. Several Corpus facilities have been reporting issues since widespread power outages knocked all of the local plants offline last month.
Meanwhile, the Marathon Galveston Bay (FKA Texas City) refinery had another issue over the weekend as an oil movement line was found to be leaking underground but does not appear to have impacted refining operations at the facility. Gulf Coast traders don’t seem concerned by any of the latest refinery issues, with basis values holding steady to start the week.
Click here to download a PDF of today's TACenergy Market Talk.