HO And WTI Reach Fresh 3-Month Highs As Inflation Outlook Improves

Market TalkWednesday, Jul 12 2023
Pivotal Week For Price Action

ULSD and WTI prices are both trading at fresh 3-month highs this morning as energy and equity markets seems to be embracing an improving outlook on inflation, and shrugging off inventory builds in the early going. 

The push higher this week opens a big of a technical window for WTI to make a run at the 200 day Moving Average, which is currently around $77.55, and managed to harshly repel 2 other rallies over the past year. 

ULSD has clawed its way back into the $2.60 range that held prices for most of March and April and there’s an argument that this opens the door to another 15-30 cents of more gains in the coming few weeks. Given that diesel inventories haven’t been able to recover much despite the freight recession this year, there’s also a fundamental argument being made that ULSD prices are poised to rally as we approach the busier demand seasons for distillates. It’s also worth noting that the correlation between ULSD daily price moves and the S&P 500 has reached a 2 year high this week, so for now, it looks like diesel prices may simply be following the stock market, which is adding to the bullish outlook today. 

The S&P 500 is trading at a 15 month high this morning after the June CPI report calculated inflation at 3% for the past 12 months, which was slightly below the “official” estimates. If it weren’t for the big drop in energy prices over the past year however, the inflation rate would be north of 5% which may eventually cause a pullback in the early rally if traders realize this better-than-predicted figure simply isn’t as good as it seems.

The API reported inventory builds across the board last week as the holiday hangover for fuel demand took hold. The industry group estimated inventory increases of 3 million barrels for crude oil, 2.9 million for distillates, and 1 million barrels for gasoline. The EIA’s weekly estimates are due out at their normal time this morning, and there’s a good chance we’ll see a big pullback in demand figures after gasoline consumption reached an 18-month high to end June, but evidence at the rack levels suggests its dropped sharply in the first third of July.

The DOE increased its outlook for US GDP growth for 2023 and 2024 in its latest Short Term Energy Outlook which helped increase the outlook for fuel prices. The agency also highlighted a change in operable refining capacity over the coming year now that Lyondell has pushed back plans to shutter its Houston refinery, but also failed to note the upcoming conversion of the P66 Rodeo CA facility to renewable production which will result in a net decrease of roughly 100mb/day. The report lowered the forecast for renewable diesel production next year due to the EPAs final ruling on the RFS through 2025 that increased targets for advanced biofuels, but not by enough to satiate the appetites of the government credit harvesters.   

Today’s interesting read: If you weren’t already convinced that ESG was a farce, read this note on how investors who don’t read the fine print ended up financing Saudi Aramco.

Click here to download a PDF of today's TACenergy Market Talk.

Market Talk Update 07.12.2023

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Pivotal Week For Price Action
Market TalkThursday, Feb 29 2024

It's Another Mixed Start For Energy Futures This Morning After Refined Products Saw Some Heavy Selling Wednesday

It's another mixed start for energy futures this morning after refined products saw some heavy selling Wednesday. Both gasoline and diesel prices dropped 7.5-8.5 cents yesterday despite a rather mundane inventory report. The larger-than-expected build in crude oil inventories (+4.2 million barrels) was the only headline value of note, netting WTI futures a paltry 6-cent per barrel gain on the day.

The energy markets seem to be holding their breath for this morning’s release of the Personal Consumption Expenditures (PCE) data from the Bureau of Economic Analysis (BEA). The price index is the Fed’s preferred inflation monitor and has the potential to impact how the central bank moves forward with interest rates.

Nationwide refinery runs are still below their 5-year average with utilization across all PADDs well below 90%. While PADD 3 production crossed its 5-year average, it’s important to note that measure includes the “Snovid” shutdown of 2021 and throughput is still below the previous two years with utilization at 81%.

We will have to wait until next week to see if the FCC and SRU shutdowns at Flint Hills’ Corpus Christi refinery will have a material impact on the regions refining totals. Detail on the filing can be found on the Texas Commission on Environmental Quality website.

Update: the PCE data shows a decrease in US inflation to 2.4%, increasing the likelihood of a rate cut later this year. Energy futures continue drifting, unfazed.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.

Pivotal Week For Price Action
Pivotal Week For Price Action
Market TalkWednesday, Feb 28 2024

It’s Red Across The Board For Energy Prices So Far This Morning With The ‘Big Three’ Contracts All Trading Lower To Start The Day

It’s red across the board for energy prices so far this morning with the ‘big three’ contracts (RBOB, HO, WTI) all trading lower to start the day. Headlines are pointing to the rise in crude oil inventories as the reason for this morning’s pullback, but refined product futures are leading the way lower, each trading down 1% so far, while the crude oil benchmark is only down around .3%.

The American Petroleum Institute published their national inventory figures yesterday afternoon, estimating an 8+ million-barrel build in crude oil inventory across the country. Gasoline and diesel stocks are estimated to have dropped by 3.2 and .5 million barrels last week, respectively. The official report from the Department of Energy is due out at its regular time this morning (9:30 CST).

OPEC’n’friends are rumored to be considering extending their voluntary production cuts into Q2 of this year in an effort to buoy market prices. These output reductions, reaching back to late 2022, are aimed at paring back global supply by about 2.2 million barrels per day and maintaining a price floor. On the flip side, knowledge of the suspended-yet-available production capacity and record US output is keeping a lid on prices.

How long can they keep it up? While the cartel’s de facto leader (Saudi Arabia) may be financially robust enough to sustain itself through reduced output indefinitely, that isn’t the case for other member countries. Late last year Angola announced it will be leaving OPEC, freeing itself to produce and market its oil as it wishes. This marks the fourth membership suspension over the past decade (Indonesia 2016, Qatar 2019, Ecuador 2020).

The spot price for Henry Hub natural gas hit a record low, exchanging hands for an average of $1.50 per MMBtu yesterday. A rise in production over the course of 2023 and above average temperatures this winter have pressured the benchmark to a price not seen in its 27-year history, much to Russia’s chagrin.

Click here to download a PDF of today's TACenergy Market Talk.