Energy Prices Surge To Start Thursday's Session
Energy prices are surging to start Thursday’s session with both WTI and RBOB futures up more than 10 percent in the early going, following statements from the U.S. President that Russia and Saudi Arabia would be discussing options to stabilize the market. If you need a reason to sell this latest bounce, note the lack of news from either of those countries so far.
In addition to the emergency meeting rumored between Russia and Saudi Arabia, the White House is said to be working with industry leaders on measures to help them survive the storm. Ideas such as leasing out the 70+ million barrels of storage in the SPR, and issuing Jones Act waivers are making rounds, in addition to the various EPA waivers already enacted to help solve this most challenging logistical puzzle. The industry has been forced to get creative to reduce supply without shutting their doors.
The DOE report was full of big numbers that suddenly feel ordinary in this unusual environment. U.S. oil stocks rose by the second largest amount on record, with more than 13 million barrels on the week. It’s worth pointing out that it was during this same week three years ago that U.S. oil stocks reached their all-time high, some 65 million barrels above current levels.
Gasoline demand fell nearly 25 percent (2.2 million barrels/day) on the week according to the DOE’s weekly estimate, and based on data from sales over the past several days, it’s likely we could see another similar decline in next week’s report. For perspective, that decline is nearly twice as big as the previous weekly record set over the Christmas holiday week in 2016. This is more than one million barrels/day - more than the third biggest drop on record set in the week after September 11.
Diesel demand remained robust last week, as an uptick in delivery and distribution demand offset the drop in buses and other commercial vehicles on the road. This weak gasoline, strong diesel phenomenon is starting to create situations in a handful of markets nationwide. Refiners are forced to cut runs due to gasoline containment issues, creating an unintended shortage in distillate supply. Diesel prices have not been reacting much to the reality at the terminal level. ULSD futures reached a new four-year low Wednesday, as refinery’s maxing diesel output and a demand slowdown both appear inevitable in April.
The bankruptcies are starting in the oil patch, with many more predicted as oil producers' only calculations these days are whether it’s cheaper to shut in their operations – which isn’t as easy as flipping a switch – or continue at minimum rates and hope the shelter-in-place orders end in a month.
Click here to download a PDF of today's TACenergy Market Talk.
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Energy 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.