Gasoline Prices Are Trying To Find A Floor, Rising For A 2nd Straight Day After Hitting A 6 Month Low Last Week
Gasoline prices are trying to find a floor, rising for a 2nd straight day after hitting a 6 month low last week, while distillates continue to fall, hitting their lowest levels since March this morning.
ULSD futures took out the April low just under $3.19 overnight and promptly dropped another nickel, before bouncing back to that level later in the morning. That layer of support looks to be about the only thing on the charts standing in the way of a drop to $3 for ULSD, and it’s worth noting that most futures and cash contracts for 2023 are already trading below that level. If you’ve been waiting to lock in diesel prices to meet or beat your budget for the next 12-18 months, this is looking like a good time. Be assured that prices could absolutely go lower from here (in 2008 they dropped from $4.15 to $1.19) but at some point, the market is going to remember that the world is still short on distillate supplies, and the long term trend in place for the past 2 years is still pointing higher.
Some money managers are probably looking for a do-over after making large increases in long positions in RBOB and ULSD contracts last week, just in time for the big price drop. Funds did reduce their long positions in WTI, Brent and Gasoil contracts however, so they weren’t all wrong. The combination of extreme volatility and concerns over the looming economic slowdown seem to be keeping the big money bettors on the sidelines. The net length held by large speculators in WTI is at its lowest since April of 2020 (also known as the time when WTI went negative) while open interest in RBOB dropped to its lowest level since 2015, and open interest in Brent dropped to its lowest since 2016 last week.
Baker Hughes reported a net decrease of 7 oil rigs active in the US last week, while natural gas rigs increased by 4. New Mexico led the drop in oil drilling activity, with 6 fewer rigs active. It’s hard to say if last week’s count will become a pattern as natural gas has become the commodity of choice globally, or just a small dip on the chart as rig counts approach pre-pandemic levels.
After a 2 month lull, the tropics are starting to heat up as we approach the interesting part of Hurricane season. The NHC is giving 40% odds of development for a system moving across the open Atlantic. It’s too soon to say where this storm (which will be named Danielle if it develops) is headed, but a path into the Gulf of Mexico is possible at this point so we’ll need to keep an eye on it for a while.
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The Energy Complex Is Trading Modestly Lower So Far This Morning With WTI Crude Oil Futures Leading The Way
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The Energy Complex Is Trading Modestly Lower So Far This Morning With WTI Crude Oil Futures Leading The Way
The energy complex is trading modestly lower so far this morning with WTI crude oil futures leading the way, exchanging hands $1.50 per barrel lower (-1.9%) than Tuesday’s settlement price. Gasoline and diesel futures are following suit, dropping .0390 and .0280 per gallon, respectively.
A surprise crude oil build (one that doesn’t include any changes to the SPR) as reported by the American Petroleum Institute late Tuesday is taking credit for the bearish trading seen this morning. The Institute estimated an increase in crude inventories of ~5 million barrels and drop in both refined product stocks of 1.5-2.2 million barrels for the week ending April 26. The Department of Energy’s official report is due out at it’s regular time (9:30 CDT) this morning.
The Senate Budget Committee is scheduled to hold a hearing at 9:00 AM EST this morning regarding a years-long probe into climate change messaging from big oil companies. Following a 3-year investigation, Senate and House Democrats released their final report yesterday alleging major oil companies have internally recognized the impacts of fossil fuels on the climate since as far back as the 1960s, while privately lobbying against climate legislation and publicly presenting a narrative that undermines a connection between the two. Whether this will have a tangible effect on policy or is just the latest announcement in an election-yeardeluge is yet to be seen.
Speaking of deluge, another drone attack was launched against Russian infrastructure earlier this morning, causing an explosion and subsequent fire at Rosneft’s Ryazan refinery. While likely a response to the five killed from Russian missile strikes in Odesa and Kharkiv, Kyiv has yet to officially claim responsibility for the attack that successfully struck state infrastructure just 130 miles from Moscow.
The crude oil bears are on a tear this past week, blowing past WTI’s 5 and 10 day moving averages on Monday and opening below it’s 50-day MA this morning. The $80 level is likely a key resistance level, below which the path is open for the American oil benchmark to drop to the $75 level in short order.
Click here to download a PDF of today's TACenergy Market Talk.
Energy Futures Are Drifting Quietly Higher This Morning
Energy futures are drifting quietly higher this morning as a new round of hostage negotiations between Israel and Hamas seem to show relative promise. It seems the market is focusing on the prospect of cooler heads prevailing, rather than the pervasive rocket/drone exchanges, the latest of which took place over Israel’s northern border.
A warmer-than-expected winter depressed diesel demand and, likewise, distillate refinery margins, which has dropped to its lowest level since the beginning of 2022. The ULSD forward curve has shifted into contango (carry) over the past month as traders seek to store their diesel inventories and hope for a pickup in demand, domestic or otherwise.
The DOE announced it had continued rebuilding it’s Strategic Petroleum Reserve this month, noting the addition of 2.3 million barrels of crude so far in April. Depending on what the private sector reported for last week, Wednesday’s DOE report may put current national crude oil inventories (include those of the SPR) above the year’s previous levels, something we haven’t seen since April of 2022, two months after Ukraine war began.
The latest in the Dangote Refinery Saga: Credit stall-out, rising oil prices, and currency exchange.
Click here to download a PDF of today's TACenergy Market Talk.
Refined Products Holding Close To Break Even While Oil Prices Are Losing Just Under 1%
Energy markets are vacillating this morning with refined products holding close to break even while oil prices are losing just under 1%.
Negotiators are meeting in Egypt this week to try and hammer out a truce in Gaza, even as Israeli airstrikes intensify. The Red Sea has continued to be active after a few weeks of relative calm, with multiple strikes reported over the weekend and another this morning.
Ukrainian drones targeted two more Russian oil refineries over the weekend, and at least one facility was reportedly taken offline as a result which means two things: Ukraine isn’t listening to US requests to stop targeting refineries, using nets to protect refineries isn’t working yet.
The CFTC’s weekly Commitments of Traders report gave a glimpse into the speculative liquidation (AKA clowns exiting the Volkswagen) that occurred in energy contracts after the direct conflict between Iran and Israel fizzled. Money managers saw heavy long liquidation, with both Brent and WTI dropping nearly 10% on the week. The only contract to see an increase in net length in last week’s report was ULSD, which had been the weak link in the complex for most of the year. ULSD did see a healthy amount of length liquidated, but that was offset by short covering as prices reached 5-month lows to create a very small net increase.
Baker Hughes reported a drop of 5 oil rigs and 1 natural gas rig drilling in the US last week, with Louisiana accounting for the majority of the decline. Pipeline capacity continues to be a limiting factor for many producers, and an RBN energy blog this morning suggests that things are about to get worse in the Permian when major pipeline maintenance occurs in June.
A fire was reported at CVR’s Wynnewood Oklahoma refinery over the weekend, although it’s unclear if the deadly storms that swept through the region played a role in that event.
Marathon’s Galveston Bay refinery reported an upset Friday that knocked a coking unit offline, but said operations were already resuming. That facility was the most-frequent TCEQ reporter last year but has been relatively quiet over the past couple of months.
Today’s interesting read courtesy of the Financial Times: How Europe solved its Russian gas crisis.
Click here to download a PDF of today's TACenergy Market Talk.