FED Signals Interest Rates To Remain The Same
It’s a quiet start to trading a day after crude oil and gasoline contracts shrugged off weaker equity markets and a stronger dollar to post a 5% rally. Inventory draws in crude oil took much of the credit for the rally, although demand estimates showed there is still plenty of work to be done to get consumption back to pre-COVID levels. The FED signaled it wouldn’t raise interest rates for nearly three years in its FOMC announcement, which also earned some credit for the rally in energy prices. Whatever the cause, this week’s bounce has reduced the risk of a near-term technical collapse, with the low prices from June passing their first major test of their chart support capabilities. Longer term there is still plenty of downside risk on the charts unless prices can push through their August highs.
Hurricane Sally made landfall with winds over 100 miles an hour, but like Laura a few weeks ago, spared refiners in the path with a late eastward shift. The plants that had reduced rates ahead of the storm appear to have avoided major damage and terminals in the region quickly reopened even as the system continues to dump huge amounts of rain and create widespread flooding.
Although it doesn’t have a name yet, the largest current storm threat could be the disturbance over the Southwest Gulf of Mexico that’s being given 90% odds of forming over the next five days, and looks like it will head north and east, putting the refining centers once again in the threat zone. Speaking of names, there’s just one name left on the list for 2020, and since that will probably get used up in the next few days, we’ll then move on to the Greek names to finish out the record setting season.
The chorus of concern for diesel continues as the DOE’s weekly demand estimate dropped to its lowest level since May last week, and inventories are once again on the cusp of reaching a record high. Add to that the incremental supply from barrels normally destined for jet fuel production and it appears that diesel may remain the weak link in the refinery chain, after more than a decade of being the primary moneymaker for many.
D4 Bio RINs continue their rally, pushing to $.80/RIN for the first time since March 2018, on the heels of stronger Soybean prices that surpassed $10/bushel for the first time in nearly three years.
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.