Market Sentiment Swings With Debt Negotiations
It’s a choppy start to the new week, with energy prices already moving back and forth from gains to losses a few times in the early going with the debt drama in Washington continuing to appear to be the key driver of price action.
Friday saw a quick and sudden price drop following news that congressional negotiators had walked out of discussions over the debt ceiling, just a couple of days after optimism over those negotiations had sent prices sharply higher. The President and House Speaker are meeting again today, which could create another big move in either direction depending on the outcome, and with a June 1 “hard deadline” fast approaching, expect that story to be the main story until a resolution is found.
Money managers continued to decrease their net length in oil contracts last week, with another round of bets on lower WTI priced being placed by the large speculative trading category (AKA hedge funds) while Brent saw a decline of more than 11,000 long positions. Funds are acting more bullish on refined products, with healthy short covering for ULSD, Gasoil and RBOB contracts last week, after it appears that prices may have found a temporary floor.
The open interest in ULSD contracts jumped up to its highest level since the start of the Ukraine war, as the return to more normal levels of volatility has allowed more players back on the field. Net length for ULSD held by money managers also moved back to a net-positive position after 2 weeks of being net short.
Baker Hughes reported a decline of 11 oil rigs drilling in the US last week, dropping the total rig count to the lowest level in a year. Texas led the decline last week with 9 of the 11 rigs shut down. Natural gas rigs held steady after last week’s huge decline but remain at their lowest levels in a year as well. A Bloomberg article last week suggests that a shortage of wastewater disposal capacity may be contributing to the slowdown in drilling activity around the Permian basin.
The 650mb/day Dangote refinery in Nigeria is being “officially” commissioned today, roughly 7 years after it was originally scheduled to come online. The facility still isn’t “actually” making refined products yet, and the Grand opening is seen by some as political theater on behalf of the outgoing President, while others see this new facility as a game changer for the Atlantic basin once it does start producing.
Today’s interesting read: An in depth look at the opportunities and challenges for a waste-to-fuel refiner.
Click here to download a PDF of today's TACenergy Market Talk.
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Week 48 - US DOE Inventory Recap
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View AllWeek 48 - US DOE Inventory Recap
The API Reported Gasoline Inventories Dropped By 898,000 Barrels Last Week
Gasoline and oil prices are attempting to rally for a 2nd straight day, a day ahead of the delayed OPEC meeting, while diesel prices are slipping back into the red following Tuesday’s strong showing.
The API reported gasoline inventories dropped by 898,000 barrels last week, crude inventories declined by 817,000 barrels while distillates saw an increase of 2.8 million barrels. Those inventory stats help explain the early increases for RBOB and WTI while ULSD is trading lower. The DOE’s weekly report is due out at its normal time this morning.
A severe storm on the Black Sea is disrupting roughly 2% of the world’s daily oil output and is getting some credit for the bounce in futures, although early reports suggest that this will be a short-lived event.
Chevron reported that its Richmond CA refinery was back online after a power outage Monday night. San Francisco spot diesel basis values rallied more than a dime Tuesday after a big drop on Monday following the news of that refinery being knocked offline.
Just a few days after Scotland’s only refinery announced it would close in 2025, Exxon touted its newest refinery expansion project in the UK Tuesday, with a video detailing how it was ramping up diesel production to reduce imports and possibly allow for SAF production down the road at its Fawley facility.
Ethanol prices continue to slump this week, reaching a 2-year low despite the bounce in gasoline prices as corn values dropped to a 3-year low, and the White House appears to be delaying efforts to shift to E15 in an election year.
Click here to download a PDF of today's TACenergy Market Talk.
Values For Space On Colonial’s Main Gasoline Line Continue To Drop This Week
The petroleum complex continues to search for a price floor with relatively quiet price action this week suggesting some traders are going to wait and see what OPEC and Friends can decide on at their meeting Thursday.
Values for space on Colonial’s main gasoline line continue to drop this week, with trades below 10 cents/gallon after reaching a high north of 18-cents earlier in the month. Softer gasoline prices in New York seems to be driving the slide as the 2 regional refiners who had been down for extended maintenance both return to service. Diesel linespace values continue to hold north of 17-cents/gallon as East Coast stocks are holding at the low end of their seasonal range while Gulf Coast inventories are holding at average levels.
Reversal coming? Yesterday we saw basis values for San Francisco spot diesel plummet to the lowest levels of the year, but then overnight the Chevron refinery in Richmond was forced to shut several units due to a power outage which could cause those differentials to quickly find a bid if the supplier is forced to become a buyer to replace that output.
Money managers continued to reduce the net length held in crude oil contracts, with both Brent and WTI seeing long liquidation and new short positions added last week. Perhaps most notable from the weekly COT report data is that funds are continuing their counter-seasonal bets on higher gasoline prices. The net length held by large speculators for RBOB is now at its highest level since Labor Day, at a time of year when prices tend to drop due to seasonal demand weakness.
Click here to download a PDF of today's TACenergy Market Talk.