Another Wave Of Selling Hit The Energy Complex After A Pair Of Potentially Bearish Headlines Hit The Wires Overnight

Another wave of selling hit the energy complex after a pair of potentially bearish headlines hit the wires overnight, but already those losses have been cut in half, suggesting another choppy day of trading ahead. On the supply side, the market seems to be breathing a sigh of relief after Russia announced it would honor its supply commitments to Europe and restart the Nord Stream natural gas pipeline Thursday, along with the customary threats against more sanctions.  On the demand side of the equation, rising COVID rates in Asia seem to be contributing to a bearish outlook for fuel consumption over the coming months.   

The drop so far does not change the neutral technical outlook, and we’ll need to see another 15-20 cents taken off of refined product prices before the lower end of the July range comes under threat, and based on the back and forth action we’ve seen so far this week it wouldn’t be surprising to see these early losses wiped out in the afternoon. Longer term, IF we do see the July lows taken out, there’s a good chance we could see sub $3 prices later this year, but if the sideways pattern can hold on for another few weeks, there’s a good chance we see another rally heading into the fall.

Natural gas continues to have an outsized impact on the rest of the petroleum complex, particularly ULSD, as distillates are one of the few short term options to supplement electricity generation when gas-burning facilities can’t keep up. A Rystad Energy report this week estimates that the US will surpass previous estimates and shatter production records this year and next as producers are finally able to utilize much of the supply they’ve been sitting on impatiently for the past decade.  

The explosion and fire at the Freeport export facility is certainly complicating the movement of that new supply as that plant accounted for roughly 20% of US exports and 10% of European imports, keeping the spread between US and natural gas prices in other parts of the world at elevated levels. A political showdown between environmental and low-price energy advocates may be looming, following reports that the PHMSA could delay restart at the facility due to “safety concerns”. 

The API was scheduled to release their weekly inventory statistical bulletin as normal Tuesday afternoon, but as of this writing that data has not been reported. That could mean the API is cracking down on news services publishing it’s subscription only data, or perhaps they’re struggling with IT issues like the EIA did for several weeks, delaying their reports. The EIA is scheduled to release its weekly status report at 9:30 central. 

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