Oil Rallies To 6-Week High On Record 2023 Oil Demand Outlook
The steady recovery rally in energy prices marches on with WTI settling north of $80 for the first time in 6 weeks yesterday and keeping the upward momentum in the early trading Wednesday. RBOB continues to follow through on its technical promise after breaking through resistance last week, moving higher for a 7th straight trading session and plotting a course towards $2.80. ULSD prices are joining the gains this morning after snapping its win streak Tuesday, but are still lagging behind, and haven’t made a real attempt at breaking their January highs.
Today’s gains follow a bullish report from the IEA, which projects that global oil demand will hit a record high this year. Probably the most meaningful quote from the IEA’s report is that “Two wildcards dominate the 2023 Oil Market Outlook: Russia and China.” China is forecast to account for half of global oil demand growth as they reopen from their COVID lockdowns, while Russian supplies continue to prove the creativity of traders around the world.
One notable item in the report was that Russian diesel exports spiked to a multi-year high of 1.2 million barrels/day, most of which went to European countries, as both sides of the war rush to do what they can before the diesel embargo starts in February. That short term excess supply, coinciding with the warm winter weather that’s spared most of Europe and the US East Coast from the feared heating fuel shortages, may have been contributing to the negative start to the year for ULSD, but will not stand in the way of the bulls in a couple of weeks.
Global refinery runs are expected to increase by 1.5 million barrels/day this year, led by the addition of more than 2.2 million barrels/day of refining capacity coming online. Like several other reports in recent weeks, the IEA also shed light on increased export quotas from China, noting that distillate volumes are already landing in Europe since those limits were raised late last year.
Motiva has spun off its trading group to parent company Saudi Aramco. The new entity Aramco Trading America’s or ATA will reportedly be the sole supplier of crude and receiver of products from Motiva’s Port Arthur refinery, which happens to be the largest in the country. There has been no reaction yet from the PGA to this announcement.
A fire injured 6 workers at the P66/Cenovus refinery complex in Borger Texas, the latest in a string of setbacks at that facility. Reports suggest the fire was at the tank farm and not an operating unit, and no report was made of emissions to the TCEQ, so it may not have a long term impact on production. That facility doesn’t influence Gulf Coast trading given its location far to the north, but can have an outsized influence on supplies to New Mexico and Colorado, particularly with the Suncor facility outside of Denver already offline for months due to Christmas blizzard.
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View AllWeek 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.
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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.