IEA, OPEC Data Push Crude, Heating Oil to 7th Straight Week of Gains
After a brief selloff that looks like a round of profit-taking Thursday, the march higher has resumed this morning, setting the stage for a 7th consecutive week of gains for oil and diesel prices. Optimistic demand outlooks from OPEC and the IEA seem to be contributing to the strength in prices, while weaker equities are being shrugged off in the early going.
The recent run-up is great news for refiners (those that didn’t sell or convert their facilities in the past few years anyway) as crack spreads have surged to their highest levels of the year, and in some cases are approaching the $42/barrel (aka $1/gallon margin) mark which should make for a great Q3. While still a far cry from the record-setting levels we saw a year ago, those spreads are well above the $5-7/barrel break-even mark for most refineries and will encourage max output for those that are able.
OPEC increased its outlook for economic growth for both 2023 and 2024 in its latest monthly oil market outlook, but held expectations for oil demand stead. The report also highlighted the recent strength in refinery margins, but also noted how tanker markets have been softening lately. The cartel’s oil output dropped by 836,000 barrels/day last month as Saudi Arabia made good on its pledge to voluntarily cut production by 1 million barrels/day, which offset increases from Iran, Iraq, Angola and Venezuela.
The IEA’s monthly oil market report highlighted global demand that it estimates is reaching all-time highs, despite so much concern about economic slowdown. The report also patted its authors on the back for the market finally rallying in July due to a tightening supply market which they’d be projecting for months. Perhaps the authors of this report are some of the same economists that will celebrate when the recession they’ve been predicting for the past 3 years finally happens as well.
Just in case you thought Warren Buffet wasn’t still smarter than you: The White House announced $1.2 billion in grants to fund 2 “direct air capture” projects that will strip carbon dioxide out of the atmosphere. Occidental Petroleum owns one of those facilities, proving the Oracle of Omaha still has it with his big bets on Texas.
The tropics are still quiet for the time being with no active storms in the Atlantic expected over the next week, but NOAA forecasters increased their outlook for the season due to record-high water temperatures, which suggests the next few months are likely to get a little sporty for suppliers if those predictions come true.
Click here to download a PDF of today's TACenergy Market Talk.
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View AllThe Energy Bulls Are On The Run This Morning, Lead By Heating And Crude Oil Futures
The energy bulls are on the run this morning, lead by heating and crude oil futures. The November HO contract is trading ~7.5 cents per gallon (2.3%) higher while WTI is bumped $1.24 per barrel (1.3%) so far in pre-market trading. Their gasoline counterpart is rallying in sympathy with .3% gains to start the day.
The October contracts for both RBOB and HO expire today, and while trading action looks to be pretty tame so far, it isn’t a rare occurrence to see some big price swings on expiring contracts as traders look to close their positions. It should be noted that the only physical market pricing still pricing their product off of October futures, while the rest of the nation already switched to the November contract over the last week or so.
We’ve now got two named storms in the Atlantic, Philippe and Rina, but both aren’t expected to develop into major storms. While most models show both storms staying out to sea, the European model for weather forecasting shows there is a possibility that Philippe gets close enough to the Northeast to bring rain to the area, but not much else.
The term “$100 oil” is starting to pop up in headlines more and more mostly because WTI settled above the $90 level back on Tuesday, but partially because it’s a nice round number that’s easy to yell in debates or hear about from your father-in-law on the golf course. While the prospect of sustained high energy prices could be harmful to the economy, its important to note that the current short supply environment is voluntary. The spigot could be turned back on at any point, which could topple oil prices in short order.
Click here to download a PDF of today's TACenergy Market Talk.
Gasoline And Crude Oil Futures Are All Trading Between .5% And .8% Lower To Start The Day
The energy complex is sagging this morning with the exception of the distillate benchmark as the prompt month trading higher by about a penny. Gasoline and crude oil futures are all trading between .5% and .8% lower to start the day, pulling back after WTI traded above $95 briefly in the overnight session.
There isn’t much in the way of news this morning with most still citing the expectation for tight global supply, inflation and interest rates, and production cuts by OPEC+.
As reported by the Department of Energy yesterday, refinery runs dropped in all PADDs, except for PADD 3, as we plug along into the fall turnaround season. Crude oil inventories drew down last week, despite lower runs and exports, and increased imports, likely due to the crude oil “adjustment” the EIA uses to reconcile any missing barrels from their calculated estimates.
Diesel remains tight in the US, particularly in PADD 5 (West Coast + Nevada, Arizona) but stockpiles are climbing back towards their 5-year seasonal range. It unsurprising to see a spike in ULSD imports to the region since both Los Angeles and San Francisco spot markets are trading at 50+ cent premiums to the NYMEX. We’ve yet to see such relief on the gasoline side of the barrel, and we likely won’t until the market switches to a higher RVP.