Energy Prices Under Pressure

Energy prices are under pressure this morning, with oil prices down more than $1/barrel and gasoline prices down 3 cents/gallon, in what appears to be a delayed reaction to some bearish supply data from the DOE, and/or a lack of action by the FED.

US crude oil inventories surged nearly 10 million barrels last week to reach their highest level in 2.5 years, in spite of exports holding north of 2.5 million barrels/day, as domestic oil production reached a new record high of 12.3 million barrels/day and refinery runs dipped slightly. If you’re wondering how WTI managed to end the day with minimal losses after that large of an inventory build, note that Cushing OK stocks – the delivery hub for the WTI futures contract – didn’t change. This is yet another sign that the Gulf Coast is where the action is and the old hub is less relevant as the US transitions to an energy exporter.

Total US refinery runs were down 137mb/day last week as a large decline in PADD 2 of 252mb/day (representing 6.6% of Midwest production) off-set gains in PADDs 1, 4 and 5. Total refinery utilization is holding below 90%, which is well below the average for this time of year as several plants front loaded maintenance for 2019 expecting margins to improve when the IMO deadline approaches, on top of numerous unplanned outages this spring.

The FOMC made no change to interest rates yesterday (as expected) and essentially made no change to its “patient” stance on future rate moves which seemed to disappoint US equity traders as most indices sold off following that announcement. Energy futures had already settled for the day when that occurred, so that late selling in stocks seems like it may have contributed to the weakness we’ve seen overnight.

The Iran and Venezuela stories continue to have many more questions than answers, and it seems like we could be stuck in a range-bound market with choppy back and forth action until a more certain picture on one or both emerges.

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