Prices Pushed Through Technical Resistance
The spring breakout rally is on as WTI, Brent and RBOB have all pushed through to fresh 4 month highs owing to a handful of bullish-enough fundamental reports that have pushed prices through technical resistance.
If prices can hold near current levels, the door seems open for WTI to push above $60, Brent to move back above $70, and for RBOB gasoline to test the $2 mark in the next couple of weeks. ULSD futures remain the laggard even though they may have the strongest fundamental case of all the contracts with inventory levels below average across most US markets and the IMO spec change looming at year end.
Yesterday’s DOE inventory report helped get the rally moving as it confirmed the inventory draws for crude oil and gasoline stocks that the API had reported the day prior. OPEC’s monthly report did give some cautionary notes to the fundamentalists as it noted a slowdown in global economic activity, and coinciding reduction in oil demand growth. That said, so far this morning, the market seems to care more about OPEC’s production dropping for a 4th straight month, led by decreases in Saudi Arabia and Venezuela. The bears will note that without the unintentional reductions from Venezuela, the cartel’s cuts were much lower last month than previously forecast.
In addition to the DOE report, gasoline seemed to be aided in its rally by unconfirmed reports swirling through the rumor mill that the Bayway NJ refinery would once again be shutting an FCC unit that was down for maintenance in February for unplanned repairs. That downtime contributed to PADD 1 refinery runs reaching an 8 year low 2 weeks ago, and yesterday’s “news” helped push April futures further into backwardation, while holding basis values in the 9 cent discount range, compared to an 18 cent discount for winter-grade RBOB this time last year.
That refinery is also finding its way into the headlines this week for other reasons. A recent report shows that toxic emissions from the plant have been cut by more than 2/3s in the past 15 years, but some are still unhappy as the refinery accounts for around half of the state’s total emissions of certain chemicals.
Meanwhile, a first of its kind lawsuit is being allowed in Boston, as an environmental group is suing Exxon over claims its terminal facility in MA is not adequately protecting against the effects of climate change.
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Crude Oil Inventories Climbed Above Year-Ago Levels For The First Time In 2024
Sell by May then go away.
The old trading adage looked good for energy markets in 2024 as the new month started off with the biggest daily sell-off of the year so far. WTI and ULSD contracts are now in “rally or else” mode on the charts with sharply lower prices a strong possibility now that technical support layers have broken down. RBOB doesn’t look quite as bearish on the charts, but seasonal factors will now act as a headwind as we’re well into the spring peaking window for gasoline prices, and we’ve already seen a 27 cent drop from the highs. If RBOB can hold above $2.50 there’s a chance to avoid a larger selloff, but if not, a run towards $2.20 for both gasoline and diesel looks likely in the months ahead.
The selling picked up steam following the DOE’s weekly report Wednesday, even though the inventory changes were fairly small. Crude oil inventories continue their steady build and climbed above year-ago levels for the first time in 2024. Demand for refined products remains sluggish, even after accounting for the RD consumption that’s still not in the weekly reports, and most PADDs are following a typical seasonal inventory trend. The Gulf Coast saw a healthy build in diesel inventories last week as the export market slowed for a 3rd straight week. Refinery runs dipped modestly last week following a handful of upsets across the country, but overall rates remain near normal levels for this time of year.
The Transmountain pipeline expansion began operations yesterday, completing a 12-year saga that has the potential to materially change refining economics for plants in the US that relied heavily on discounted Canadian crude to turn profits over the past decade.
The P66 Borger refinery reported another operational upset Monday that lasted a full 24 hours impacting a sulfur recovery unit. Last week the company highlighted how the plant’s fire department helped the surrounding area when the largest wildfire in state history came within feet of the facility.
The EPA approved a new model to determine life cycle carbon intensity scores this week, which cracks open the door for things like ethanol to SAF, which were previously deemed to not reduce emissions enough to qualify for government subsidies. The new model would require improved farming techniques like no-till, cover crop planting and using higher efficiency nitrogen fertilizer to limit the damage done by farms that no longer rotate crops due to the ethanol mandates. Whether or not the theoretical ability to produce SAF comes to fruition in the coming years thanks to the increased tax credit potential will be a key pivot point for some markets that find themselves with too much RD today, but could see those supplies transition to aviation demand.
The FED continues to throw cold water on anyone hoping for a near term cut in interest rates. The FOMC held rates steady as expected Wednesday, but also highlighted the struggles with stubbornly high inflation. The CME’s Fedwatch tool gave 58% odds of at least one rate cut by September before the announcement, and those odds have slipped modestly to 54% this morning.
Week 17 - US DOE Inventory Recap
The Energy Complex Is Trading Modestly Lower So Far This Morning With WTI Crude Oil Futures Leading The Way
The energy complex is trading modestly lower so far this morning with WTI crude oil futures leading the way, exchanging hands $1.50 per barrel lower (-1.9%) than Tuesday’s settlement price. Gasoline and diesel futures are following suit, dropping .0390 and .0280 per gallon, respectively.
A surprise crude oil build (one that doesn’t include any changes to the SPR) as reported by the American Petroleum Institute late Tuesday is taking credit for the bearish trading seen this morning. The Institute estimated an increase in crude inventories of ~5 million barrels and drop in both refined product stocks of 1.5-2.2 million barrels for the week ending April 26. The Department of Energy’s official report is due out at it’s regular time (9:30 CDT) this morning.
The Senate Budget Committee is scheduled to hold a hearing at 9:00 AM EST this morning regarding a years-long probe into climate change messaging from big oil companies. Following a 3-year investigation, Senate and House Democrats released their final report yesterday alleging major oil companies have internally recognized the impacts of fossil fuels on the climate since as far back as the 1960s, while privately lobbying against climate legislation and publicly presenting a narrative that undermines a connection between the two. Whether this will have a tangible effect on policy or is just the latest announcement in an election-yeardeluge is yet to be seen.
Speaking of deluge, another drone attack was launched against Russian infrastructure earlier this morning, causing an explosion and subsequent fire at Rosneft’s Ryazan refinery. While likely a response to the five killed from Russian missile strikes in Odesa and Kharkiv, Kyiv has yet to officially claim responsibility for the attack that successfully struck state infrastructure just 130 miles from Moscow.
The crude oil bears are on a tear this past week, blowing past WTI’s 5 and 10 day moving averages on Monday and opening below it’s 50-day MA this morning. The $80 level is likely a key resistance level, below which the path is open for the American oil benchmark to drop to the $75 level in short order.
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