Rapid Tightening Of Fuel Supplies Around The World
It was a quiet start to the week with most petroleum contracts hovering near unchanged on the day after reaching fresh 3 year highs on Friday, as traders seem to be waiting to see the results of today’s OPEC meeting. A sudden rally just before 8am central suggests they may be holding tight. The big question was whether or not the cartel & its new friends will change their plan to bring idled production back online slowly, given the rapid tightening of fuel supplies around the world since they last met, and while an official announcement isn’t out yet, the market reaction (so far) suggests they’re not changing course.
Not surprisingly, as prices have pushed to fresh multi-year highs, money managers continue to jump on the bandwagon, increasing their net length held in 4 of the 5 busiest petroleum contracts last week, with only ULSD contracts seeing a pullback in length held by the large speculator trade category. This influx of bets on higher prices from large funds can be a double edged sword for prices, as they can both exacerbate a short supply situation like we’re seeing in parts of the world today, but also create a snowball effect of selling once the hot money decides to head for the exits. Short covering was the theme for RBOB contracts last week, as the money manager short position was cut by nearly ¼ in just one week as it appears the seasonal gasoline demand-slowdown trade may be overshadowed by the global supply crunch this year.
Friday was another busy day for RIN trading, with multiple 10 cent swings up and down throughout the day, ending the day with double digit gains as the recovery rally from the fake RVO leak is now nearly completed.
Baker Hughes reported 7 more oil rigs were put to work last week, 3 of which were in the Permian basin, as the industry’s recovery starts to pick up steam. The total US count is now up 239 oil rigs vs this time last year, but remains 282 rigs below the count from this time 2 years ago.
A Dallas FED report last week highlighted how the Texas economy has been diversifying away from its dependence on oil, which should continue to fuel growth in the state in coming years. Right on cue, a WSJ article this weekend took a look at the progression of Exxon’s algae-based fuels.
There are 3 active storm systems being tracked by the NHC this week, but none look to be a major threat to fuel supplies. The one with a chance of hitting the US coast is only given 10% odds of developing into a named storm.
Today’s interesting read: The wide variety of factors creating supply chain disruptions that are impacting everything from fuel additives to Christmas presents.
Click here to download a PDF of today's TACenergy Market Talk.
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View AllEnergy 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.