Gasoline Futures Have Gone Nowhere This Week
Gasoline futures have gone nowhere this week, currently trading just $.0001 below where they left off last Friday. In between, we saw an 8 cent drop Monday, only to rally 13 cents, followed by a nickel pullback that leaves us where we are today. Crude oil and diesel prices haven’t been as volatile as gasoline, but are following a similar choppy but aimless pattern.
Tropical depression Fred is struggling to regain strength, and is now forecast to barely regain tropical storm strength before moving up the west coast of Florida this weekend. That system now looks like more of a demand threat than a supply threat as it promises to bring heavy rains to wide portions of the south east, without threatening infrastructure. The system churning in Fred’s wake is now given 80% odds of developing, and looks to be headed on a similar path.
OPEC’s monthly oil market report showed the cartel’s output grew by more than 630mb/day last month, which for perspective is enough oil to supply the largest refinery in the US. Saudi Arabia continues to account for the majority of the increase, as it unwinds its voluntary production cuts, which were in excess of the joint agreement made last year. The report increased expectations for world economic growth in 2021 and 2022, but did not increase its oil demand estimates. OPEC’s report also highlighted the strength in US Gasoline cracks, and added that strong exports to Brazil due to widespread refinery outages in that country were a key contributor, along with the other items already highlighted by the EIA earlier in the week.
The IEA’s monthly oil market report noted that global fuel demand abruptly declined in July after strong increases in June as the world reacts to the latest COVID outbreaks. The report suggests that because of the latest fallout, it’s unlikely that OPEC will be able to unwind their production cuts on a linear path next year as supplies are suddenly looking like they’ll outpace demand once again.
Click here to download a PDF of today's TACenergy Market Talk.
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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.