Oil Production Cuts Fall Short Of Demand Drop
The Oil Price War officially ended last week as Saudi Arabia, Russia, and the other members of the OPEC & Friends alliance agreed on the framework for the largest production cuts ever. Markets have not been impressed so far however as those cuts still fall short of the drop in demand we’ve seen in the past month, and as compliance is still in doubt, even though Mexico finally agreed to the pact over the weekend.
Friday’s meeting of G20 oil ministers won a Captain Obvious award when the group agreed that stabilization in the market is needed. Beyond that, the group was unable to come up with any sort of detailed plan, which may not matter since producers will be forced to cut on their own as they run out of places to store their product.
Baker Hughes reported 58 more oil rigs taken offline last week, marking a drop of 179 rigs in the past four weeks, 26 percent of the national total. That’s how capitalism deals with low prices.
An explosion and fire at one Gulf Coast refinery, and storm-related power outages that knocked another offline over the holiday weekend would ordinarily be enough to get markets stirred up, but in the current world where most – if not all – refiners are forced to cut production due to the rapid and record setting drop in demand, those two events seem to barely make a blip on the radar.
With basis values in several regional markets running near all-time lows, this week’s action looks like it could be pivotal in that we may see if the signals the physical market is sending on extreme oversupply create another wave of selling in futures.
Money managers increased their net length in Brent crude contracts last week for the first time in six weeks signaling that the large speculative class of trader thinks the floor may be in for prices. WTI and ULSD both saw minor increases in managed money positions while RBOB continued to see its mass liquidation event from the record number of bets that gasoline prices would move higher, when prices were actually more than one dollar/gallon higher than they are now.
Click here to download a PDF of today's TACenergy Market Talk.
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Week 48 - US DOE Inventory Recap
The API Reported Gasoline Inventories Dropped By 898,000 Barrels Last Week
Gasoline and oil prices are attempting to rally for a 2nd straight day, a day ahead of the delayed OPEC meeting, while diesel prices are slipping back into the red following Tuesday’s strong showing.
The API reported gasoline inventories dropped by 898,000 barrels last week, crude inventories declined by 817,000 barrels while distillates saw an increase of 2.8 million barrels. Those inventory stats help explain the early increases for RBOB and WTI while ULSD is trading lower. The DOE’s weekly report is due out at its normal time this morning.
A severe storm on the Black Sea is disrupting roughly 2% of the world’s daily oil output and is getting some credit for the bounce in futures, although early reports suggest that this will be a short-lived event.
Chevron reported that its Richmond CA refinery was back online after a power outage Monday night. San Francisco spot diesel basis values rallied more than a dime Tuesday after a big drop on Monday following the news of that refinery being knocked offline.
Just a few days after Scotland’s only refinery announced it would close in 2025, Exxon touted its newest refinery expansion project in the UK Tuesday, with a video detailing how it was ramping up diesel production to reduce imports and possibly allow for SAF production down the road at its Fawley facility.
Ethanol prices continue to slump this week, reaching a 2-year low despite the bounce in gasoline prices as corn values dropped to a 3-year low, and the White House appears to be delaying efforts to shift to E15 in an election year.
Click here to download a PDF of today's TACenergy Market Talk.
Values For Space On Colonial’s Main Gasoline Line Continue To Drop This Week
The petroleum complex continues to search for a price floor with relatively quiet price action this week suggesting some traders are going to wait and see what OPEC and Friends can decide on at their meeting Thursday.
Values for space on Colonial’s main gasoline line continue to drop this week, with trades below 10 cents/gallon after reaching a high north of 18-cents earlier in the month. Softer gasoline prices in New York seems to be driving the slide as the 2 regional refiners who had been down for extended maintenance both return to service. Diesel linespace values continue to hold north of 17-cents/gallon as East Coast stocks are holding at the low end of their seasonal range while Gulf Coast inventories are holding at average levels.
Reversal coming? Yesterday we saw basis values for San Francisco spot diesel plummet to the lowest levels of the year, but then overnight the Chevron refinery in Richmond was forced to shut several units due to a power outage which could cause those differentials to quickly find a bid if the supplier is forced to become a buyer to replace that output.
Money managers continued to reduce the net length held in crude oil contracts, with both Brent and WTI seeing long liquidation and new short positions added last week. Perhaps most notable from the weekly COT report data is that funds are continuing their counter-seasonal bets on higher gasoline prices. The net length held by large speculators for RBOB is now at its highest level since Labor Day, at a time of year when prices tend to drop due to seasonal demand weakness.
Click here to download a PDF of today's TACenergy Market Talk.