First Trading Session Indicates Another Volatile Year
If the first trading session is an indication of things to come, it’s going to be another volatile year for energy markets. Oil and diesel prices surged 4% or more to reach 10 month highs in overnight trading, with WTI coming just a few ticks away from the $50 mark, only to see those gains completely erased before a second rally started around 7:30 central. Headline writers can’t quite keep pace with the big early swings that may be caused by expectations for the OPEC meeting taking place today, the latest updates on the global vaccine race, or simply due to the positioning of capital as the new year begins.
ULSD futures were up a nickel around 3 a.m., and RBOB futures were up more than 4 cents, but both have since traded all the way back into negative territory, with the most heavy selling starting around 6 a.m., only to bounce back into positive territory again. This early action could be significant technically, as the complex is on the verge of a breakout to the upside on the charts, but if the rallies continue to be followed by heavy selling, we could be stuck in an extended period of sideways that tends to be whiplash inducing.
U.S. equity markets are starting the year on a more bullish note, with S&P 500 futures trading at record highs, following a strong start to trading in Asian and European markets, and the U.S. dollar is falling once again, reaching its lowest level since April 2018.
The CFTC’s commitments of traders report was delayed again due to holidays and should be out later this afternoon. The ICE’s version of the report showed minimal change in the managed money positions in Brent, but a large increase in bets on higher prices in Gasoil, suggesting a renewed interest in diesel prices from the big speculators.
The EIA is starting off the year highlighting its U.S. Energy Atlas, and interactive mapping program that shows details on energy infrastructure of all types nationwide. The interactive nature of that program seems particularly useful these days as the past year saw more refinery closures announced than the country had experienced in nearly 40 years. So far we’ve made it three days into 2021 without any new announcements of plants being shuttered, but we’re also in the worst few weeks for demand of the entire year historically so there still could be more to come.
Click here to download a PDF of today's TACenergy Market Talk.
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Refined Products Are Moving Lower For A 2nd Day After Coming Under Heavy Selling Pressure In Wednesday’s Session
Refined products are moving lower for a 2nd day after coming under heavy selling pressure in Wednesday’s session. Rapidly increasing refinery runs and sluggish diesel demand both seemed to weigh heavily on product prices, while crude oil is still benefitting from the disruption of exports from Iraq. Prices remain range-bound, so expect more choppy back and forth action in the weeks ahead.
US oil inventories saw a large decline last week, despite another 13-million barrels of oil being found in the weekly adjustment figure, as imports dropped to a 2-year low, and refinery runs cranked up in most regions as many facilities return from spring maintenance.
The refining utilization percentage jumped to its highest level of the year but remains overstated since the new 250,000 barrels/day of output from Exxon’s Beaumont facility still isn’t being counted in the official capacity figures. If you’re shocked that the government report could have such a glaring omission, then you haven’t been paying attention to the Crude Adjustment figure this year, and the artificially inflated petroleum demand estimates that have come with it.
Speaking of which, we’re now just a couple of months away from WTI Midland crude oil being included in the Dated Brent index, and given the uncertainty in the US over what should be classified as oil vs condensate, expect some confusion once those barrels start being included in the international benchmark as well.
Diesel demand continues to hover near the lowest levels we’ve seen for the first quarter in the past 20+ years, dropping sharply again last week after 2 straight weeks of increases had some markets hoping that the worst was behind us. Now that we’re moving out of the heating season, we’ll soon get more clarity on how on road and industrial demand is holding up on its own in the weekly figures that have been heavily influenced by the winter that wasn’t across large parts of the country.
Speaking of which, the EIA offered another mea culpa of sorts Wednesday by comparing its October Winter Fuels outlook to the current reality, which shows a huge reduction in heating demand vs expectations just 6-months ago.
It’s not just domestic consumption of diesel that’s under pressure, exports have fallen below their 5-year average as buyers in South America are buying more Russian barrels, and European nations are getting more from new facilities in the Middle East.
Take a look at the spike in PADD 5 gasoline imports last week to get a feel for how the region may soon be forced to adjust to rapidly increasing refining capacity in Asia, while domestic facilities come under pressure.
Crude Oil Prices Are Trying To Lead Another Rally In Energy Futures This Morning
Crude oil prices are trying to lead another rally in energy futures this morning, while ULSD prices are resisting the pull higher. Stocks are pointed higher in the early going as no news is seen as good news in the banking crisis.
WTI prices have rallied by $10/barrel in the past 7 trading days, even with a $5 pullback last Thursday and Friday. The recovery puts WTI back in the top half of its March trading range but there’s still another $7 to go before the highs of the month are threatened.
Yesterday’s API report seems to be aiding the continued strength in crude, with a 6 million barrel inventory decline estimated by the industry group last week. That report also showed a decline of 5.9 million barrels of gasoline which is consistent with the spring pattern of drawdowns as we move through the RVP transition, while distillates saw a build of 550k barrels. The DOE’s weekly report is due out at its normal time this morning.
Diesel prices seems to be reacting both to the small build in inventories – which is yet another data point of the weak demand so far this year for distillates – and on the back of crumbling natural gas prices that settled at their lowest levels in 2.5 years yesterday and fell below $2/million BTU this morning.
While diesel futures are soft, rack markets across the Southwestern US remain unusually tight, with spreads vs spot markets approaching $1/gallon in several cases as local refiners go through maintenance and pipeline capacity for resupply remains limited. The tightest supply in the region however remains the Phoenix CBG boutique gasoline grade which is going for $1.20/gallon over spots as several of the few refineries that can make that product are having to perform maintenance at the same time.
French refinery strikes continue for a 4th week and are estimated to be keeping close to 1 million barrels/day of fuel production offline, which is roughly 90% of French capacity and almost 1% of total global capacity. That disruption is having numerous ripple effects on crude oil markets in the Atlantic basin, while the impact on refined product supplies and prices remains much more contained than it was when this happened just 5 months ago.
Click here to download a PDF of today's TACenergy Market Talk.