Product Prices Pushed The Petroleum Complex Into Official Bear Market Territory On Tuesday
Another double digit drop in refined product prices pushed the petroleum complex into official Bear Market territory Tuesday, ending an 18 month price rally. December trading started on a much more optimistic note with product rallying 10 cents in lockstep with a big bounce in US equity markets overnight, but have already cut those gains in half, leaving the complex vulnerable to more big swings.
Refined product spot prices are down more than 30 cents so far this week as cash markets catch up with the Black Friday meltdown, and ethanol prices decided to join in on the fun Tuesday plummeting 50 cents in the New York harbor and 40 cents in other spots.
The two agencies with strongest potential influence on energy prices are OPEC and the US Federal Reserve. This week will feature both as comments from the Fed chair Tuesday helped spur another broad based sell-off that could be classified as a “Taper Tantrum” by the big money funds that expect their big money to be free and easily printed.
OPEC is now taking center stage as their technical committee meets today and then the full group meeting tomorrow, with several reports guessing the cartel may use Omicron as an excuse to pause their plans to steadily increase oil output. With several producers already struggling to meet their quotas, that change in the stated plan could help prop up oil prices, even if in real terms it doesn’t mean any less oil coming to market, and would also send a signal to the US & other nations that they shouldn’t bring their SPR knife to the oil price gun fight.
The API reported builds in refined products last week of 2 million barrels of gasoline and 800,000 barrels of diesel, while oil stocks had a small decrease of roughly 750,000 barrels. That report seemed to be largely shrugged off based on the price action Tuesday afternoon through the overnight session, as the larger macro issues continue to be driving the Risk-off/Risk On action across asset classes. The DOE’s weekly report is due out at its normal time this morning. While that report may have less impact than normal on futures, watch the refinery runs by PADD to see how plants are progressing through maintenance to get a feel for how quickly some of the supply shortages in pockets around the country may heal.
Science getting in the way again: California’s Air Resource Board published a study this week that shows Bio Diesel and Renewable diesel blends are actually creating more NOx pollution than “traditional” CARB #2 diesel in modern engines. The Next Steps listed by the Agency are to take several months to ask more questions, so it’s unlikely we’ll see any changes to the state’s current regulations any time soon, but it will create new challenges for the state’s biodiesel blenders.
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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.
Click here to download a PDF of today's TACenergy Market Talk.
Energy Futures Are Drifting Quietly Higher This Morning
Energy futures are drifting quietly higher this morning as a new round of hostage negotiations between Israel and Hamas seem to show relative promise. It seems the market is focusing on the prospect of cooler heads prevailing, rather than the pervasive rocket/drone exchanges, the latest of which took place over Israel’s northern border.
A warmer-than-expected winter depressed diesel demand and, likewise, distillate refinery margins, which has dropped to its lowest level since the beginning of 2022. The ULSD forward curve has shifted into contango (carry) over the past month as traders seek to store their diesel inventories and hope for a pickup in demand, domestic or otherwise.
The DOE announced it had continued rebuilding it’s Strategic Petroleum Reserve this month, noting the addition of 2.3 million barrels of crude so far in April. Depending on what the private sector reported for last week, Wednesday’s DOE report may put current national crude oil inventories (include those of the SPR) above the year’s previous levels, something we haven’t seen since April of 2022, two months after Ukraine war began.
The latest in the Dangote Refinery Saga: Credit stall-out, rising oil prices, and currency exchange.
Click here to download a PDF of today's TACenergy Market Talk.