Energy Prices Are Attempting To Bounce After A Heavy Round Of Selling Tuesday

Energy prices are attempting to bounce after a heavy round of selling Tuesday led to a fresh round of multi-month lows across the petroleum complex. RBOB gasoline futures reached a 2 year low at 1.9672 overnight before finding a modest bid this morning. ULSD futures dropped a dime to reach a new 5 month low, but we did see a recovery in basis values across several markets that tempered the losses. 

The losses for diesel prices coincide with a big selloff in natural gas prices in Europe and the US, as forecasts suggest moderate winter weather will continue to keep a lid on heating demand.  

The EIA lowered its price forecasts for energy contracts next year in its latest monthly Short Term Energy Outlook, citing a slowdown in demand growth and ample spare production capacity from OPEC and others for keeping a lid on prices. The forecasts do suggest that gasoline and diesel inventories will remain on the low end of their seasonal ranges through 2024.

OPEC held both of its supply and demand estimates steady for 2024 in its latest Monthly Oil Market Report. The report also noted the weaker refining margins in the US and Europe but noted that China’s suppression of exports has allowed Asian refining margins recover somewhat from their distressed levels. The cartel’s oil production dipped slightly in November, as declines in Iraq, Angola, and Nigeria offset increases from Venezuela, Libya and Kuwait. One interesting note from the OPEC report: Tanker costs for clean products had a big divergence with rates for shipping West of the Suez canal (aka the Atlantic basin) surging 28%, while rates East of the Suez declined by 24%.  Many factors are likely playing into those different price movements, with the Panama Canal delays, Red Sea ship attacks and slowdown in Chinese exports all probably contributing.

The API reported a large build in gasoline stocks of 5.8 million barrels last week, while distillates had a small increase of 300,000 barrels and crude oil inventories declined by 2.3 million barrels. The DOE’s weekly report is due out at its normal time this morning.

The White House is expected to provide more guidance this week on whether or not the treasury will support making “sustainable” aviation fuel from ethanol, in what may be a game changer for the renewable fuel industry, even though the official rules on subsidies likely won’t be finished for some time, and like the rest of the RFS will probably face legal challenges for years.

The FOMC will make its latest announcement at 1pm central, with no change in interest rates expected today based on the CME’s Fedwatch tool. The market is fairly split on the FED’s plans for next year with a 45% probability of at least 1 rate cut by March, and 80% odds of a full percentage point decrease by this time next year priced into futures.  Any indication that the FOMC isn’t preparing to cut is sure to throw cold water on financial markets but may not impact energy as much given the weak correlations of late.

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