Rapid Pace Of Price Recovery

Market TalkMonday, Jun 8 2020
Week 21 - US DOE Inventory Recap

Energy futures were rallying again overnight as OPEC & friends made a new deal this weekend, and a Tropical Storm passed over a critical energy supply hub. Most contracts have given up their gains this morning, however, as concerns mount that rapid pace of the price recovery could mean production may return faster than demand can heal.

WTI broke the $40 mark for the first time in more than six weeks overnight. Of course when WTI hit $40 six weeks ago, there was a negative sign in front of it. The last time WTI was at a positive $40, was Friday, March 6, the day before the Oil Price War started, so it’s fitting the return comes the day after Saudi Arabia and Russia found themselves on the same team again.

Baker Hughes reported another 16 oil rigs were taken offline last week, bringing the total oil rig count to a new 10-year low, and the combined oil and gas count to yet another all-time low. It’s worth noting that unlike most weeks where the Permian basin accounted for the majority of the rig count reduction, this week it was the Eagle Ford that declined the most, with nine rigs taken offline, which was nearly half of the remaining number in that basin. There will be much debate on how soon we may see a recovery in production now that prices are back near the $40 level, although it’s reasonable to think we won’t see meaningful additions in drilling unless prices can get above $40 and stay there for a while. It’s important to remember that with more than 7,000 DUC wells available, U.S. producers can ramp up output even without increasing the rig count.

Cristobal made landfall in Louisiana as a Tropical Storm Sunday, and had shifted far enough east to make things uncomfortable for the refiners and ports along the Mississippi river near New Orleans. Ports have been shut since Saturday, and the damage assessments are underway, but so far it does not appear that there was any notable infrastructure damage to the supply network.

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Pivotal Week For Price Action
Market TalkThursday, Feb 29 2024

It's Another Mixed Start For Energy Futures This Morning After Refined Products Saw Some Heavy Selling Wednesday

It's another mixed start for energy futures this morning after refined products saw some heavy selling Wednesday. Both gasoline and diesel prices dropped 7.5-8.5 cents yesterday despite a rather mundane inventory report. The larger-than-expected build in crude oil inventories (+4.2 million barrels) was the only headline value of note, netting WTI futures a paltry 6-cent per barrel gain on the day.

The energy markets seem to be holding their breath for this morning’s release of the Personal Consumption Expenditures (PCE) data from the Bureau of Economic Analysis (BEA). The price index is the Fed’s preferred inflation monitor and has the potential to impact how the central bank moves forward with interest rates.

Nationwide refinery runs are still below their 5-year average with utilization across all PADDs well below 90%. While PADD 3 production crossed its 5-year average, it’s important to note that measure includes the “Snovid” shutdown of 2021 and throughput is still below the previous two years with utilization at 81%.

We will have to wait until next week to see if the FCC and SRU shutdowns at Flint Hills’ Corpus Christi refinery will have a material impact on the regions refining totals. Detail on the filing can be found on the Texas Commission on Environmental Quality website.

Update: the PCE data shows a decrease in US inflation to 2.4%, increasing the likelihood of a rate cut later this year. Energy futures continue drifting, unfazed.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.

Pivotal Week For Price Action
Pivotal Week For Price Action
Market TalkWednesday, Feb 28 2024

It’s Red Across The Board For Energy Prices So Far This Morning With The ‘Big Three’ Contracts All Trading Lower To Start The Day

It’s red across the board for energy prices so far this morning with the ‘big three’ contracts (RBOB, HO, WTI) all trading lower to start the day. Headlines are pointing to the rise in crude oil inventories as the reason for this morning’s pullback, but refined product futures are leading the way lower, each trading down 1% so far, while the crude oil benchmark is only down around .3%.

The American Petroleum Institute published their national inventory figures yesterday afternoon, estimating an 8+ million-barrel build in crude oil inventory across the country. Gasoline and diesel stocks are estimated to have dropped by 3.2 and .5 million barrels last week, respectively. The official report from the Department of Energy is due out at its regular time this morning (9:30 CST).

OPEC’n’friends are rumored to be considering extending their voluntary production cuts into Q2 of this year in an effort to buoy market prices. These output reductions, reaching back to late 2022, are aimed at paring back global supply by about 2.2 million barrels per day and maintaining a price floor. On the flip side, knowledge of the suspended-yet-available production capacity and record US output is keeping a lid on prices.

How long can they keep it up? While the cartel’s de facto leader (Saudi Arabia) may be financially robust enough to sustain itself through reduced output indefinitely, that isn’t the case for other member countries. Late last year Angola announced it will be leaving OPEC, freeing itself to produce and market its oil as it wishes. This marks the fourth membership suspension over the past decade (Indonesia 2016, Qatar 2019, Ecuador 2020).

The spot price for Henry Hub natural gas hit a record low, exchanging hands for an average of $1.50 per MMBtu yesterday. A rise in production over the course of 2023 and above average temperatures this winter have pressured the benchmark to a price not seen in its 27-year history, much to Russia’s chagrin.

Click here to download a PDF of today's TACenergy Market Talk.