Energy Markets Seeing Modest Gains To Start Friday's Session

Energy markets are seeing modest gains to start Friday’s session, chipping away at the heavy losses we saw earlier in the week.  

If prices end near current levels, gasoline prices will be down about a penny for the week while distillates will be down by a nickel, and the weekly charts still have a higher high and higher low than last week, keeping the upward trend intact. 

While the pullback Tuesday and Wednesday eased immediate concerns of another runaway rally for fuel prices, warning signs are already flashing that retail fuel prices are back up to $3.50 per gallon during some of the weakest demand of the year, while refiners are still able to blend large amounts of butane into fuel to stretch supplies. With inventories already low and numerous refineries struggling, the stage is set fundamentally for a big rally in the weeks ahead, and technical indicators suggest there’s plenty of room for more upside as the upward trend started in December is still intact despite this week’s selling.

Are we striking or not? That seems to be the question for French unions that tried again Thursday to disrupt operations at refineries and nuclear power plants Thursday, but saw participation wane as cold temperatures increased heating demand and increased the risk of backlash for interfering with fuel deliveries. There’s another strike planned for next week, so the risk to supplies remains if that lasts more than a day or two.

Chevron reported record profits in 2022, even though Q4 earnings pulled back substantially from the prior 2 quarters as fuel prices retreated. The company’s refinery earnings were more than triple 2021 levels, in what is certainly going to be a theme for the rest of the earnings releases upcoming. Of course these companies remain easy targets for politicians wanting to place blame for high fuel prices. The “drill more or else” mantra is probably overlooking that while the on shore rig counts have stagnated, the offshore business is booming once again. 

While refined products are recovering, natural gas prices have continued to slide, dropping below $3 for the first time since May of 2021 as inventories swell and weather reports suggest that much warmer winter than previously forecast is still in the cards. Those cheap prices may not last long however as the Freeport LNG Export facility received FERC approval to begin the long process of restarting its operations. That facility accounted for 15% of US exports before a fire last June and has kept domestic prices suppressed as those supplies were stranded inland.

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