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, Dec 1 2023

“Buy The Rumor, Sell The News” Seems To Be The Trading Pattern Of The Week

“Buy the Rumor, Sell the News” seems to be the trading pattern of the week as oil and refined products dropped sharply Thursday after OPEC & Friends announced another round of output cuts for the first quarter of next year. 

Part of the reason for the decline following that report is that it appears that the cartel wasn’t able to reach an official agreement on the plan for next year, prompting those that could volunteer their own production cuts without forcing restrictions on others. In addition, OPEC members not named Saudi Arabia are notorious for exceeding official quotas when they are able to, and Russia appears to be (surprise) playing games by announcing a cut that is made up of both crude oil and refined products, which are already restricted and thus allow an incremental increase of exports. 

Diesel futures are leading the way lower this morning, following a 13-cent drop from their morning highs Thursday, and came within 3-cents of a new 4-month low overnight. The prompt contract did leave a gap on the chart due to the backwardation between December and January contracts, which cut out another nickel from up front values.

Gasoline futures meanwhile are down 15-cents from yesterday’s pre-OPEC highs and are just 7-cents away from reaching a new 1-year low.  

Cash markets across most of the country are looking soft as they often do this time of year, with double digit discounts to futures becoming the rule across the Gulf Coast and Mid Continent. The West Coast is mixed with diesel prices seeing big discounts in San Francisco, despite multiple refinery upsets this week, while LA clings to small premiums. 

Ethanol prices continue to hold near multi-year lows this week as controversy over the fuel swirls. Corn growing states filed a motion this week trying to compel the courts to force the EPA to waive pollution laws to allow E15 blends. Meanwhile, the desire to grow even more corn to produce Jet Fuel is being hotly debated as the environmental impacts depend on which side of the food to fuel lobby you talk to.

The chaotic canal congestion in Panama is getting worse as authorities are continuing to reduce the daily number of ships transiting due to low water levels. Those delays are hitting many industries, energy included, and are now spilling over to one of the world’s other key shipping bottlenecks.

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Pivotal Week For Price Action
Market TalkThursday, Nov 30 2023

No Official Word From OPEC Yet On Their Output Agreement For Next Year

Energy prices are pushing higher to start Thursday’s session after a big bounce Wednesday helped the complex maintain its upward momentum for the week.   

There’s no official word from OPEC yet on their output agreement for next year, but the rumor-mill is in high gear as always leading up to the official announcement, if one is actually made at all. A Reuters article this morning suggests that “sources” believe Saudi Arabia will continue leading the cartel with a voluntary output cut of around 1-million BPD to begin the year and given the recent drop in prices that seems like a logical move. 

We saw heavy selling in the immediate wake of the DOE’s weekly report Wednesday, only to see prices reverse course sharply later in the day. ULSD was down more than 9-cents for a few minutes following the report but bounced more than 7-cents in the afternoon and is leading the push higher this morning so far.

It’s common to see demand drop sharply following a holiday, particularly for diesel as many commercial users simply shut down their operations for several days, but last week’s drop in implied diesel demand was one of the largest on record for the DOE’s estimates. That drop in demand, along with higher refinery runs, helped push diesel inventories higher in all markets, and the weekly days of supply estimate jumped from below the 5-year seasonal range around 25 days of supply to above the high end of the range at 37 days of supply based on last week’s estimated usage although it’s all but guaranteed we’ll see a correction higher in demand next week.

Gasoline demand also slumped, dropping to the low end of the seasonal range, and below year-ago levels for the first time in 5-weeks. You’d never guess that based on the bounce in gasoline prices that followed the DOE’s report however, with traders appearing to bet that the demand slump in a seasonal anomaly and tighter than average inventories may drive a counter-seasonal price rally.

Refinery runs increased across the country as plants returned to service following the busiest fall maintenance season in at least 4-years. While total refinery run rates are still below last year’s levels, they’re now above the 5-year average with more room to increase as no major upsets have been reported to keep a large amount of throughput offline.

The exception to the refinery run ramp up comes from PADD 4 which was the only region to see a decline last week after Suncor apparently had another inopportune upset at its beleaguered facility outside Denver. 

The 2023 Atlantic Hurricane season officially ends today, and it will go down as the 4th most active season on record, even though it certainly didn’t feel too severe given that the US dodged most of the storms.  

Today is also the expiration day for December 2023 ULSD and RBOB futures so look to the January contracts (RBF and HOF) for price direction if your market hasn’t already rolled.

More refineries ready to change hands next year?  With Citgo scheduled to be auctioned off, Irving Oil undergoing a strategic evaluation, and multiple new refineries possibly coming online, 2024 was already looking to be a turbulent year for refinery owners. Phillips 66 was indicating that it may sell off some of its refinery assets, but a new activist investor may upend those plans, along with the company’s directors.

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