OPEC Surprised Just About Everyone This Weekend When They Announced A New Production Cut

Market TalkMonday, Apr 3 2023
Pivotal Week For Price Action

OPEC surprised just about everyone this weekend when they announced a new production cut of 1.15 million barrels/day (roughly 1% of total global production) without holding an official meeting. The market reaction was instantaneous when trading resumed Sunday night with oil prices rallying 7-8% while refined products were up 4-5% before reducing those gains by about 1/3 this morning. 

Several notes are suggesting that the cartel’s surprise move came in response to the US administration walking back plans to buy oil for the SPR when prices dipped below $70 and are another clear signal that the Saudi’s are getting comfortable aligning themselves more with Eastern powers than the US. That said, it’s hard to imagine their new pals in China are thrilled about this news, that will add billions to the cost of their imports.

RBOB briefly set a new 5 month high during the overnight buying spree, before pulling back by about a nickel from those levels.  If the May contract can settle above $2.81, there’s a strong case on the charts that we’ll see a run to the $3 level in April. As has been the case for a few months now, the technical outlook is not nearly as bullish, with the overnight price jump failing to take out levels we saw on the charts a week ago, although it did manage to wipe out the effects of the roll from April to May futures. Similar to RBOB we’ll need to see ULSD climb above $2.80 to give the bulls a path to a more meaningful rally, but that’s still a dime above current value.   

OPEC’s monitoring committee met this morning and noted that member countries were complying with their output cuts that were previously agreed to and highlighted the additional 1.66 million barrels/day of cuts agreed to this weekend, which includes the half million of Russian output reductions that were previously announced.

Money managers were jumping back on the energy bandwagon last week, with large speculators increasing bets on higher refined product prices and covering short positions in WTI after prices bottomed out at $64 the previous week.  Those that covered shorts last week are no doubt breathing a sigh of relief today, while those that didn’t could be forced to do so when the margin calls come in.

Baker Hughes reported a drop of 1 oil rig and 2 natural gas rigs drilling in the US last week, continuing a trend of low enthusiasm by producers for current price levels.  If prices stay in the $80s, it will be interesting to see how quickly that pattern changes in the coming months since labors, material, and now financing, have all become more of a challenge.

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Market Talk Update 04.03.2023

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Pivotal Week For Price Action
Pivotal Week For Price Action
Market TalkWednesday, Nov 29 2023

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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Pivotal Week For Price Action
Market TalkTuesday, Nov 28 2023

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.