Mixed Start For Energy Markets
It’s a mixed start for energy markets to begin the week with oil and diesel futures clinging to modest gains while gasoline prices drop about a penny. Nervous markets around the world continue to be an overriding theme as trade threats, rising interest rates, and a potential regime shake-up in the world’s most critical oil producer all remain front and center in the headlines.
The Saudi mystery took several turns this weekend, with several high ranking officials being removed from their positions after the Kingdom changed its story on what happened to journalist Jamal Khashoggi. Energy traders are breathing a little easier as the change in stance includes mention that there is “no intention” of using oil as a political weapon against the mounting international pressure.
Money managers slashed their net-long holdings in petroleum contracts across the board in the latest CFTC report, which is not too surprising given the heavy selling we saw in the week preceding the data being collected. Now that the shine has come off the energy rally for the speculative class of trader, a major question is if these funds will stay long or head for the exits as year-end approaches.
Baker Hughes reported 4 more oil rigs were put to work last week in the US, bringing the total to 873 active rigs, the highest count since March of 2015. The rising rig count and rising prices certainly suggests that times are good for US drillers, although a report over the weekend suggests that many in the shale industry continue to struggle to turn a profit.
Two weeks after the explosion at the Irving refinery in St. John NB, investigators are still unable to get to the blast zone to investigate the cause, which could delay repairs and the restart of some units at the plant. So far New York harbor prices still aren’t reacting much to the news, although some signs of tighter supply in New England are showing up at the terminal level.
While Hurricane Michael had little impact on petroleum supplies, the EIA this morning highlighted the widespread electricity outages across the South Eastern US.
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Energy Prices Fluctuate: Chinese Imports Surge, Saudi Arabia Cuts Output and Buys Golf
Energy prices continue their back-and-forth trading, starting Wednesday’s session with modest gains, after a round of selling Tuesday wiped out the Saudi output cut bounce.
A surge in China’s imports of crude oil and natural gas seem to be the catalyst for the early move higher, even though weak export activity from the world’s largest fuel buyer suggests the global economy is still struggling.
New tactic? Saudi Arabia’s plan to voluntarily cut oil production by another 1 million barrels/day failed to sustain a rally in oil prices to start the week, so they bought the PGA tour.
The EIA’s monthly Short Term Energy Outlook raised its price forecast for oil, citing the Saudi cuts, and OPEC’s commitment to extend current production restrictions through 2024. The increase in prices comes despite reducing the forecast for US fuel consumption, as GDP growth projections continue to decline from previous estimates.
The report included a special article on diesel consumption, and its changing relationship with economic activity that does a good job of explaining why diesel prices are $2/gallon cheaper today than they were a year ago.
The API reported healthy builds in refined product inventories last week, with distillates up 4.5 million barrels while gasoline stocks were up 2.4 million barrels in the wake of Memorial Day. Crude inventories declined by 1.7 million barrels on the week. The DOE’s weekly report is due out at its normal time this morning.
We’re still waiting on the EPA’s final ruling on the Renewable Fuel Standard for the next few years, which is due a week from today, but another Reuters article suggests that eRINs will not be included in this round of making up the rules.
Click here to download a PDF of today's TACenergy Market Talk.
Week 23 - US DOE Inventory Recap
Energy Prices Retreat, Global Demand Concerns Loom
So much for that rally. Energy prices have given back all of the gains made following Saudi Arabia’s announcement that it would voluntarily withhold another 1 million barrels/day of oil production starting in July. The pullback appears to be rooted in the ongoing concerns over global demand after a soft PMI report for May while markets start to focus on what the FED will do at its FOMC meeting next week.
The lack of follow through to the upside leaves petroleum futures stuck in neutral technical territory, and since the top end of the recent trading range didn’t break, it seems likely we could see another test of the lower end of the range in the near future.
RIN prices have dropped sharply in the past few sessions, with traders apparently not waiting on the EPA’s final RFS ruling – due in a week – to liquidate positions. D6 values dropped to their lowest levels in a year Monday, while D4 values hit a 15-month low. In unrelated news, the DOE’s attempt to turn seaweed into biofuels has run into a whale problem.
Valero reported a process leak at its Three Rivers TX refinery that lasted a fully 24 hours. That’s the latest in a string of upsets for south Texas refineries over the past month that have kept supplies from San Antonio, Austin and DFW tighter than normal. Citgo Corpus Christi also reported an upset over the weekend at a sulfur recovery unit. Several Corpus facilities have been reporting issues since widespread power outages knocked all of the local plants offline last month.
Meanwhile, the Marathon Galveston Bay (FKA Texas City) refinery had another issue over the weekend as an oil movement line was found to be leaking underground but does not appear to have impacted refining operations at the facility. Gulf Coast traders don’t seem concerned by any of the latest refinery issues, with basis values holding steady to start the week.
Click here to download a PDF of today's TACenergy Market Talk.