Equity Markets Point Higher
WTI and Brent are trading at new highs for the year to start the last trading day in March, as equity markets point higher on the day on renewed US-China trade optimism and the half-life of a President’s oil-related tweet impact on the market continues to shrink.
Unless there’s a dramatic mid-day reversal today (not expected) this is shaping up to be the strongest quarter for oil futures (along with several equity indices) since 2009. The heavy selling to end 2018 certainly set the stage for a recovery bounce, while OPEC cuts – both intentional and not – and a rash of refinery downtime – both planned and not – were also big contributors to the price rally.
Looking forward to the 2nd quarter, it seems the supply disruptions should be priced into the market, so additional upside may need to come from the demand side of the equation, and may hinge on whether or not the global economy continues to show signs of slowing down. This week’s dramatic reversal in gasoline prices seems to have burst the spring-breakout bubble, but there are still a few more weeks left in the RVP transition and there are 2 months until driving season officially kicks off so it’s still a little too soon to break out the calls for a seasonal top.
The latest in the Venezuela saga: Citgo has secured financing to continue its operations (which have to this point continued seemingly without issue since US sanctions on its parent company) while Russia is working on new ways to get the sanctioned crude to market, which I’m sure will be at a fair price if they succeed.
As part of its 2019 annual energy outlook, the EIA is highlighting its forecast that tight-oil, aka Shale plays will continue driving US oil production for the next few decades. The report is also suggesting that US oil production will continue climbing from its current record high of 12.1 million barrels/day to 14 million barrels/day in the next couple of years. At the same time, US tight-oil exports are facing new scrutiny as foreign buyers find issues with contamination caused by the comingled nature of US pipeline networks.
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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.