Refined Products Are Sliding To Start The Week
Refined products are sliding to start the week, while crude oil prices are up more than $1/barrel in the early going.
Weaker equity markets following the FED’s Friday reminder that it wasn’t done fighting inflation is getting some credit for the sell-off. In addition, refined products appear to still be taking cues from European energy prices which are seeing a healthy sell-off after Germany reported it was ahead of schedule in filling up its natural gas storage, which could help avoid an electricity crisis this winter.
The EPA has waived summer gasoline RVP requirements a few weeks ahead of normal for 4 Midwestern states to help deal with the fallout from a fire at the BP refinery outside of Chicago which is the largest plant in the region, and 6th largest in the country. In addition, Michigan’s governor has declared a state of emergency, Chicago basis values jumped on Friday as buyers scrambled to find other options, with the refineries restart timeframe still up in the air.
Short covering was the theme last week for money managers, who slashed their bets on falling petroleum prices in dramatic fashion, and drove a large increase in net length on most contracts. ULSD was the only one of the big 5 petroleum contracts that saw a decline in net length held by large speculators, even though 5% of the outstanding short positions were covered during the previous week. Open interest in crude and refined product contracts continues to hold at 5-7 year lows, which appears to be a key contributor to the low volume/high volatility daily price swings we’ve become accustomed to.
4 more oil rigs were put to work last week, according to Baker Hughes’ weekly rig count, while natural gas rigs saw a decline of 1. The Texas side of the Permian basin accounted for most of the increase in oil drilling last week, while the Eagle Ford basin saw a decrease of 2 rigs on the week.
The tropics woke up after a long summer nap. The National Hurricane center is tracking 4 different potential storm systems this week. Three of those systems are given low odds of development, but one is given 80% odds of getting a name over the next 5 days. If that storm isn’t named by Wednesday, this would be the first time in 25 years that we’ve gone the entire month of August without a named storm. Despite the slow start, forecasters are still calling for an above-average storm season, which means September is going to get very busy if they’re right.
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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.