Energy Rally Paused By Iraqi-Kurdish Export Deal

Oil prices are seeing some modest selling after 5 days of gains following reports that Iraq had reached a temporary agreement with Kurdish leaders that will allow roughly ½ million barrels/day of exports to resume. 

Refined products are seeing small gains after a back-and-forth session Tuesday. RBOB futures did fill in their chart gap during yesterday’s early drop that was nearly erased in the afternoon, which leaves one less lingering concern for anyone looking for a run to $3. ULSD prices meanwhile continue to look weak technically, with daily and weekly charts showing the contracts range-bound between $2.50-$2.80, while the monthly chart shows that the bear market that has pushed prices down $2/gallon in the past 6 months is still intact, with a chance for a slide to $2 possible if a rally doesn’t start in the next month or two. 

The API reported inventory draws across the board last week with gasoline down just under 4 million barrels, distillates down 3.7 million and crude oil inventories down 4.3 million. The EIA’s weekly report is due out at its normal time. 

The EIA has been highlighting its annual outlook in its daily energy articles this week. If you have been convinced that petroleum supplies will soon be a thing of the past, the government’s analysts disagree, estimating that domestic production of oil and natural gas will continue to grow through 2050, with international buyers taking on more of the demand for those products. Total US energy demand is also expected to grow over the next 30 years, although more domestic market share will be taken up by various forms of renewables.

So far, reports of supply disruptions from the parade of deadly tornadoes that have been sweeping the country have been minimal. Some minor issues with power outages have been reported but nothing that’s made much of an impact on prices or allocations yet. A report on the deadly tornado that tracked for more than 40 miles Friday suggests that Marathon’s refinery in Robinson IL came way too close for comfort to a direct hit.

Ethanol prices have rallied to their strongest levels of the year this week as stronger gasoline and corn prices both seem to be encouraging buyers. Last week’s train derailment that included ethanol cars is the latest data point to argue why it’s better to deliver 198 proof alcohol in ounces instead of gallons, but that’s not stopping a campaign by both the Ag Lobby, and fuel retailers to allow E15 sales in the summer. RIN values meanwhile have been strangely quiet the past couple of weeks, consolidating near the lowest levels of the year. If we see D6 values drop below $1.50/gallon, there’s room for a big drop in the charts, but so far buyers have been stepping in any time we get close to that value.

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