Oil Prices Are Trading Up More Than $1/Barrel So Far Today

Market TalkThursday, Oct 12 2023
Pivotal Week For Price Action

Energy futures are moving higher to start Thursday’s session, as traders digest a data deluge with the EIA, IEA and OPEC all publishing their monthly market reports over the past 24 hours, in addition to the weekly inventory reports and CPI estimate. ULSD futures are once again leading the way, up nearly a nickel/gallon, while gasoline prices struggle to keep up adding only a penny so far.

September’s CPI was up .4% on the month and 3.7% on the year, with shelter costs contributing most to inflation, while rising gasoline prices were the 2nd biggest factor. The fact that September’s reading still had gasoline prices increasing, despite the big drop in wholesale values over the past several weeks suggests both that retailers are enjoying a period of huge margins after a tough end to summer, and that next month’s inflation reading is poised to drop substantially. 

Oil prices are trading up more than $1/barrel so far today, despite the API reporting an inventory build of nearly 13 million barrels yesterday. Gasoline stocks were reported to build by 3.6 million barrels, while diesel stocks declined by 3.5 million barrels. The EIA’s weekly report is due out at 10am central today due to the obsolete holiday Monday.

The EIA published its Short Term Energy Outlook Wednesday, which included the agency’s paid-for forecast on winter fuels for the upcoming season. Highlights from this report include a higher price forecast for crude oil, thanks in large part to voluntary production cuts, a note on Jet fuel consumption that’s recovering faster than other products, and a look at how biofuels and other liquids are taking market share from the traditional refined products. The winter outlook forecasts lower spending for most consumers thanks primarily to lower natural gas prices, while the Western US is predicted to see a warmer winter, while the Eastern half of the country is expected to see something colder than last year, which isn’t saying much considering last winter set records for warmth.

OPEC held its forecasts for 2024 steady in its monthly market report, but noted economic activity and non-OPEC oil production are both beating expectations so far this year. The cartel’s output increased by 273mb/day during the month, with most members increasing output. Nigeria had the largest increase at 141mb/day above August levels, marking a 2nd straight month of strong increases Saudi Arabia was a bit of a surprise on the upside, adding 82mb/day for the month as it fine tunes its output to come in right at the 9 million barrel/day mark.    

The IEA was notably more bearish in its monthly outlook than the other two agencies, highlighting the weakness in US gasoline consumption which it said reached a 2-decade low in September. The report did note that rapid demand growth in China is serving to offset some of the destruction in developed countries, which will keep driving global consumption higher. The IEA’s report also noted that Russia’s export revenue is surging with average prices going well above the “cap” levels which seem to be largely ignored at this point.

Flint Hills reported a leak in an FCC unit at their Corpus Christi refinery Wednesday, marking at least the 4th upset from Corpus-area refiners in the past two weeks. So far, these hiccups haven’t had a large impact on the Austin/San Antonio and DFW markets they serve.

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Market Talk Update 10.12.2023

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Market TalkFriday, May 17 2024

The Recovery Rally In Energy Markets Continues For A 3rd Day

The recovery rally in energy markets continues for a 3rd day with refined product futures both up more than a dime off of the multi-month lows we saw Wednesday morning. The DJIA broke 40,000 for the first time ever Thursday, and while it pulled back yesterday, US equity futures are suggesting the market will open north of that mark this morning, adding to the sends of optimism in the market.

Despite the bounce in the back half of the week, the weekly charts for both RBOB and ULSD are still painting a bearish outlook with a lower high and lower low set this week unless the early rally this morning can pick up steam in the afternoon. It does seem like the cycle of liquidation from hedge funds has ended however, so it would appear to be less likely that we’ll see another test of technical support near term after this bounce.

Ukraine hit another Russian refinery with a drone strike overnight, sparking a fire at Rosneft’s 240mb/day Tuapse facility on the black sea. That plant was one of the first to be struck by Ukrainian drones back in January and had just completed repairs from that strike in April. The attack was just one part of the largest drone attack to date on Russian energy infrastructure overnight, with more than 100 drones targeting power plants, fuel terminals and two different ports on the Black Sea. I guess that means Ukraine continues to politely ignore the White House request to stop blowing up energy infrastructure in Russia.

Elsewhere in the world where lots of things are being blown up: Several reports of a drone attack in Israel’s largest refining complex (just under 200kbd) made the rounds Thursday, although it remains unclear how much of that is propaganda by the attackers and if any impact was made on production.

The LA market had 2 different refinery upsets Thursday. Marathon reported an upset at the Carson section of its Los Angeles refinery in the morning (the Carson facility was combined with the Wilmington refinery in 2019 and now reports as a single unit to the state, but separately to the AQMD) and Chevron noted a “planned” flaring event Thursday afternoon. Diesel basis values in the region jumped 6 cents during the day. Chicago diesel basis also staged a recovery rally after differentials dropped past a 30 cent discount to futures earlier in the week, pushing wholesale values briefly below $2.10/gallon.

So far there haven’t been any reports of refinery disruptions from the severe weather than swept across the Houston area Thursday. Valero did report a weather-related upset at its Mckee refinery in the TX panhandle, although it appears they avoided having to take any units offline due to that event.

The Panama Canal Authority announced it was increasing its daily ship transit level to 31 from 24 as water levels in the region have recovered following more than a year of restrictions. That’s still lower than the 39 ships/day rate at the peak in 2021, but far better than the low of 18 ships per day that choked transit last year.

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

Pivotal Week For Price Action
Market TalkThursday, May 16 2024

Energy Prices Found A Temporary Floor After Hitting New Multi-Month Lows Wednesday

Energy prices found a temporary floor after hitting new multi-month lows Wednesday morning as a rally to record highs in US equity markets and a modestly bullish DOE report both seemed to encourage buyers to step back into the ring.

RBOB and ULSD futures both bounced more than 6 cents off of their morning lows, following a CPI report that eased inflation fears and boosted hopes for the stock market’s obsession of the FED cutting interest rates. Even though the correlation between energy prices and equities and currencies has been weak lately, the spillover effect on the bidding was clear from the timing of the moves Wednesday.

The DOE’s weekly report seemed to add to the optimism seen in equity markets as healthy increases in the government’s demand estimates kept product inventories from building despite increased refinery runs.

PADD 3 diesel stocks dropped after large increases in each of the past 3 weeks pushed inventories from the low end of their seasonal range to average levels. PADD 2 inventories remain well above average which helps explain the slump in mid-continent basis values over the past week. Diesel demand showed a nice recovery on the week and would actually be above the 5 year average if the 5% or so of US consumption that’s transitioned to RD was included in these figures.

Gasoline inventories are following typical seasonal patterns except on the West Coast where a surge in imports helped inventories recover for a 3rd straight week following April’s big basis rally.

Refiners for the most part are also following the seasonal script, ramping up output as we approach the peak driving demand season which unofficially kicks off in 10 days. PADD 2 refiners didn’t seem to be learning any lessons from last year’s basis collapse and rapidly increased run rates last week, which is another contributor to the weakness in midwestern cash markets. One difference this year for PADD 2 refiners is the new Transmountain pipeline system has eroded some of their buying advantage for Canadian crude grades, although those spreads so far haven’t shrunk as much as some had feared.

Meanwhile, wildfires are threatening Canada’s largest oil sands hub Ft. McMurray Alberta, and more than 6,000 people have been forced to evacuate the area. So far no production disruptions have been reported, but you may recall that fires in this region shut in more than 1 million barrels/day of production in 2016, which helped oil prices recover from their slump below $30/barrel.

California’s Air Resources Board announced it was indefinitely delaying its latest California Carbon Allowance (CCA) auction – in the middle of the auction - due to technical difficulties, with no word yet from the agency when bidders’ security payments will be returned, which is pretty much a nice microcosm for the entire Cap & Trade program those credits enable.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.

Pivotal Week For Price Action