Presidents’ Day Kicking Off With Slow Start
Presidents’ Day 2019 is kicking off with a relatively slow start in energy markets this morning. The ‘big three’ benchmark contracts are showing modest upside bias but will likely end today’s abbreviated session quietly as most American traders have taken the day off. Refined products are bouncing around unchanged while WTI opts to add about 50 cents. The European benchmark, ICE’s Brent Crude Oil, is lacking conviction in its upward move as well, only adding 15 cents to its prompt month contract so far this morning.
Baker Hughes reported an additional 3 oil production rig startups last week, bringing the total operating count to 857. The ~2 month long rally in crude prices can be loosely attributed to the “whatever it takes” strategy OPEC has employed to prop up weak benchmark prices: slashing production runs in member nations, including the cartel’s main player Saudi Arabia. Somewhat of a wildcard when it comes to production strategy (and most other things too), Russia claims to be accelerating current cuts to boost prices as well.
After last week it appears that the spring rally in gasoline prices, and the energy complex by association, is in full swing. Most technical indicators are flashing green for RBOB futures as they have pushed through the upper end of the trading range they have been captive to since December. Technical resistance levels are the challenge this week, specifically today and tomorrow, as the front month contract trades up to the 100 day moving average this morning. Since there won’t be a settlement today, traders have two days to decide if gas prices are going to break above resistance and take a shot at last summer’s prices. Peg $1.58 as the pivotal price level, with $1.64 as the price target if the former can’t hold the rally.
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Energy Prices Fluctuate: Chinese Imports Surge, Saudi Arabia Cuts Output and Buys Golf
Energy prices continue their back-and-forth trading, starting Wednesday’s session with modest gains, after a round of selling Tuesday wiped out the Saudi output cut bounce.
A surge in China’s imports of crude oil and natural gas seem to be the catalyst for the early move higher, even though weak export activity from the world’s largest fuel buyer suggests the global economy is still struggling.
New tactic? Saudi Arabia’s plan to voluntarily cut oil production by another 1 million barrels/day failed to sustain a rally in oil prices to start the week, so they bought the PGA tour.
The EIA’s monthly Short Term Energy Outlook raised its price forecast for oil, citing the Saudi cuts, and OPEC’s commitment to extend current production restrictions through 2024. The increase in prices comes despite reducing the forecast for US fuel consumption, as GDP growth projections continue to decline from previous estimates.
The report included a special article on diesel consumption, and its changing relationship with economic activity that does a good job of explaining why diesel prices are $2/gallon cheaper today than they were a year ago.
The API reported healthy builds in refined product inventories last week, with distillates up 4.5 million barrels while gasoline stocks were up 2.4 million barrels in the wake of Memorial Day. Crude inventories declined by 1.7 million barrels on the week. The DOE’s weekly report is due out at its normal time this morning.
We’re still waiting on the EPA’s final ruling on the Renewable Fuel Standard for the next few years, which is due a week from today, but another Reuters article suggests that eRINs will not be included in this round of making up the rules.
Click here to download a PDF of today's TACenergy Market Talk.
Week 23 - US DOE Inventory Recap
Energy Prices Retreat, Global Demand Concerns Loom
So much for that rally. Energy prices have given back all of the gains made following Saudi Arabia’s announcement that it would voluntarily withhold another 1 million barrels/day of oil production starting in July. The pullback appears to be rooted in the ongoing concerns over global demand after a soft PMI report for May while markets start to focus on what the FED will do at its FOMC meeting next week.
The lack of follow through to the upside leaves petroleum futures stuck in neutral technical territory, and since the top end of the recent trading range didn’t break, it seems likely we could see another test of the lower end of the range in the near future.
RIN prices have dropped sharply in the past few sessions, with traders apparently not waiting on the EPA’s final RFS ruling – due in a week – to liquidate positions. D6 values dropped to their lowest levels in a year Monday, while D4 values hit a 15-month low. In unrelated news, the DOE’s attempt to turn seaweed into biofuels has run into a whale problem.
Valero reported a process leak at its Three Rivers TX refinery that lasted a fully 24 hours. That’s the latest in a string of upsets for south Texas refineries over the past month that have kept supplies from San Antonio, Austin and DFW tighter than normal. Citgo Corpus Christi also reported an upset over the weekend at a sulfur recovery unit. Several Corpus facilities have been reporting issues since widespread power outages knocked all of the local plants offline last month.
Meanwhile, the Marathon Galveston Bay (FKA Texas City) refinery had another issue over the weekend as an oil movement line was found to be leaking underground but does not appear to have impacted refining operations at the facility. Gulf Coast traders don’t seem concerned by any of the latest refinery issues, with basis values holding steady to start the week.
Click here to download a PDF of today's TACenergy Market Talk.