Positive Long-Term Supply Outlook Pressures Energy Futures
Diesel prices are leading the energy complex lower to start Wednesday’s trading, following an optimistic report on global distillate supplies and more inventory builds in the US.
The IEA’s monthly oil report forecasts global oil demand to grow by 2 million barrels/day this year, nearly half of which is due to China’s reopening. Jet Fuel will lead all other products with rapid growth in flights expected in Asia as a billion people start trying to move again. The report also highlighted the successful impact of price caps on Russian oil, noting that supplies have held up well, but Russia is only averaging about $50/barrel, and its fiscal revenues have dropped by 48% from a year ago. IF the new embargo and price caps on diesel go as well as the restrictions on crude oil, the agency thinks the world may weather the storm much better in 23 than it did last year. The report also was the latest to note that there is heavy refinery maintenance scheduled over the next couple of months that may keep supplies tight.
The API reported a huge build in crude oil inventories of more than 10 million barrels last week, even though no oil has been released from the SPR for over a month. That huge build may be a sign of the start of spring maintenance at numerous refineries, or perhaps an anomaly on the import/export flow. Refined products both saw modest builds of 846,000 barrels for gasoline and 1.7 million barrels for diesel. The DOE’s weekly report is due out at its normal time this morning and will be delayed a day next week due to President’s Day.
After more than 13 years of research, Exxon is reportedly walking away from its efforts to turn algae into biofuels, in the latest example of just how challenging it is to find a legitimate replacement for hydrocarbons.
Today’s interesting read: How the looming startup of the Dangote refinery in Nigeria could create structural shifts in the flow of oil and refined products, and the ships that move them. The main question being when exactly that facility will begin operations. The plant has been in construction for more than a decade and was originally scheduled to come online in 2019. Current estimates are for startup between Q1 and Q2 of this year.
There were 3 different refinery upsets reported to the TCEQ yesterday, Marathon’s El Paso refinery was forced to reduce runs after high winds caused power issues to that plant, which will only add to the strain of the supply network in the region that’s already been dealing with numerous planned and unplanned refinery outages. Meanwhile, the Motiva Port Arthur refinery and P66 in Sweeny TX both reported unit upsets, although the cause or impact are still unclear and so far, seem to have little if any impact on basis values.
The award for meaningful refining upset of the day once again goes to the state of California, which saw gasoline basis values jump more than 10 cents, and diesel diffs rally by a nickel following yet another facility reportedly being forced to take a unit offline for unscheduled repairs.
Click here to download a PDF of today's TACenergy Market Talk.
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Refined Products Are Moving Lower For A 2nd Day After Coming Under Heavy Selling Pressure In Wednesday’s Session
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View AllRefined Products Are Moving Lower For A 2nd Day After Coming Under Heavy Selling Pressure In Wednesday’s Session
Refined products are moving lower for a 2nd day after coming under heavy selling pressure in Wednesday’s session. Rapidly increasing refinery runs and sluggish diesel demand both seemed to weigh heavily on product prices, while crude oil is still benefitting from the disruption of exports from Iraq. Prices remain range-bound, so expect more choppy back and forth action in the weeks ahead.
US oil inventories saw a large decline last week, despite another 13-million barrels of oil being found in the weekly adjustment figure, as imports dropped to a 2-year low, and refinery runs cranked up in most regions as many facilities return from spring maintenance.
The refining utilization percentage jumped to its highest level of the year but remains overstated since the new 250,000 barrels/day of output from Exxon’s Beaumont facility still isn’t being counted in the official capacity figures. If you’re shocked that the government report could have such a glaring omission, then you haven’t been paying attention to the Crude Adjustment figure this year, and the artificially inflated petroleum demand estimates that have come with it.
Speaking of which, we’re now just a couple of months away from WTI Midland crude oil being included in the Dated Brent index, and given the uncertainty in the US over what should be classified as oil vs condensate, expect some confusion once those barrels start being included in the international benchmark as well.
Diesel demand continues to hover near the lowest levels we’ve seen for the first quarter in the past 20+ years, dropping sharply again last week after 2 straight weeks of increases had some markets hoping that the worst was behind us. Now that we’re moving out of the heating season, we’ll soon get more clarity on how on road and industrial demand is holding up on its own in the weekly figures that have been heavily influenced by the winter that wasn’t across large parts of the country.
Speaking of which, the EIA offered another mea culpa of sorts Wednesday by comparing its October Winter Fuels outlook to the current reality, which shows a huge reduction in heating demand vs expectations just 6-months ago.
It’s not just domestic consumption of diesel that’s under pressure, exports have fallen below their 5-year average as buyers in South America are buying more Russian barrels, and European nations are getting more from new facilities in the Middle East.
Take a look at the spike in PADD 5 gasoline imports last week to get a feel for how the region may soon be forced to adjust to rapidly increasing refining capacity in Asia, while domestic facilities come under pressure.
Crude Oil Prices Are Trying To Lead Another Rally In Energy Futures This Morning
Crude oil prices are trying to lead another rally in energy futures this morning, while ULSD prices are resisting the pull higher. Stocks are pointed higher in the early going as no news is seen as good news in the banking crisis.
WTI prices have rallied by $10/barrel in the past 7 trading days, even with a $5 pullback last Thursday and Friday. The recovery puts WTI back in the top half of its March trading range but there’s still another $7 to go before the highs of the month are threatened.
Yesterday’s API report seems to be aiding the continued strength in crude, with a 6 million barrel inventory decline estimated by the industry group last week. That report also showed a decline of 5.9 million barrels of gasoline which is consistent with the spring pattern of drawdowns as we move through the RVP transition, while distillates saw a build of 550k barrels. The DOE’s weekly report is due out at its normal time this morning.
Diesel prices seems to be reacting both to the small build in inventories – which is yet another data point of the weak demand so far this year for distillates – and on the back of crumbling natural gas prices that settled at their lowest levels in 2.5 years yesterday and fell below $2/million BTU this morning.
While diesel futures are soft, rack markets across the Southwestern US remain unusually tight, with spreads vs spot markets approaching $1/gallon in several cases as local refiners go through maintenance and pipeline capacity for resupply remains limited. The tightest supply in the region however remains the Phoenix CBG boutique gasoline grade which is going for $1.20/gallon over spots as several of the few refineries that can make that product are having to perform maintenance at the same time.
French refinery strikes continue for a 4th week and are estimated to be keeping close to 1 million barrels/day of fuel production offline, which is roughly 90% of French capacity and almost 1% of total global capacity. That disruption is having numerous ripple effects on crude oil markets in the Atlantic basin, while the impact on refined product supplies and prices remains much more contained than it was when this happened just 5 months ago.
Click here to download a PDF of today's TACenergy Market Talk.