Oil And Gasoline Contracts Reached Fresh Highs
Spring Break has been put on hold for energy futures as the upward momentum seems to have stalled out after oil and gasoline contracts reached fresh highs for the year. Don’t get too excited about the sell-off just yet, we’ve seen a few of these head-fakes already during the most recent run-up, and March Madness is just about to tip off.
Concerns over US/China trade talks – the easy mark for any headline writer in 2019 – are getting credit for the pullback even though US equity markets are holding steady. Others suggest that the postponed OPEC meeting is a sign that Russia is pressuring the cartel to end its output agreement earlier than the Saudi’s would like, and that strain could be bearish for prices.
The API was reported to show inventory declines across the board last week, with crude stocks down 2.1 million barrels, gasoline down 2.8 and diesel down 1.6. The EIA’s weekly report is due out at its normal release time of 9:30 central this morning. Look for product draws in the Midwest (PADD 2) in today’s report as signs in local pipeline markets suggest supplies have drawn down rapidly in the past week.
RIN values continue to drop this week after the EPA’s proposal to limit trading in the renewable fuel credits, and to approve a handful of small-refinery waivers. Ethanol values meanwhile have surged as logistical constraints have created gasoline supply disruptions in a handful of markets across the country, forcing buyers to pay up to find replacement barrels. Overall US ethanol inventories remain near all-time highs so it seems this price spike will be short lived once the trains get back on schedule.
The fire at the Deer Park TX terminal has been extinguished after burning for nearly 4 days. While that situation looks like it may have only minor impacts on operations and prices in the world’s busiest petroleum hub, it could have longer term consequences for the state’s environmental watchdog as the extended duration created plenty of doubts about their assurances about air quality.
Speaking of which, Carbon emissions continue to move into the forefront of our industry’s and society’s consciousness, with numerous plans for reduced emissions mentioned during recent earnings calls and during the CERAWeek conference. The EIA this morning showed its predictions that US energy-related carbon emissions will hold steady through 2050 as natural gas replaces coal to support America’s growth. Petroleum-based emissions are expected to fall over the next decade owing to increased vehicle fuel efficiency and more stringent product specs.
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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.