Optimism Spilling Over Into Energy Futures
Stock markets around the world are rallying on news that the US & China are close to a trade deal, and that optimism seems to be spilling over into energy futures once again.
While the correlation between US stock indices and NYMEX futures has fallen to its lowest levels in 3 months, most calculations are still north of positive 80% on a daily basis, which is a strong enough relationship to argue that the two are still likely to move in tandem more often than not. In addition to the indirect relationship between asset classes, China was also reported to buy its first US crude oil cargo since the trade spat began last year helping boost the outlook for petroleum.
Baker Hughes reported a drop of 10 oil rigs last week, with Texas accounting for half of the drop as the lone-star state racked up an 8th straight week of declines. The WSJ noted that the Permian basin is dealing with a spacing problem that may lower the number of wells completed, and could ultimately reduce forecasted production. So far, the 2-month decline in rig count hasn’t trickled down to field-level data as the latest Permian basin survey from the Dallas FED shows production, DUC wells and wages in the area all continuing to climb.
Money managers upped their bets on higher Brent crude oil prices for an 8th straight week, although the total net-long position held by large speculators is still below the 5-year average, suggesting the big money may still be on the sidelines after last year’s heavy sell-off took several funds out of the game.
The CFTC will finally be caught up with its commitments of traders reports after the government shutdown. Through mid-February data, speculators seem less enthusiastic about WTI with net length dropping for a 3rd week, and the total bet on higher prices holding near the bottom of its 5 year range, meaning those same speculators that were burned by last year’s price drop, also appear to have missed out on the recovery rally.
A couple of interesting reads:
John Hess’s interview at the Dallas Fed, including his take on the Princeton Wedges approach to tackling climate change.
The shortage of truck drivers in the US and its likely impact on consumer goods, including petroleum products.
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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.