Refined Products Seeing Minimal Gains On Light Volume While Crude Oil Prices See Small Losses
March trading is coming in like a lamb with refined products seeing minimal gains on light volume while crude oil prices see small losses in the early going.
China’s manufacturing saw its fastest increase in a decade February as the country rapidly reopened from COVID in one of the key early indicators of the economic activity in the world’s largest buyer of oil. The lack of reaction in oil or product prices to this news suggests that the market may have been expecting even more.
The API reported another large crude oil build of 6 million barrels last week, a third straight week of large increases despite no barrels being released from the SPR during that time. Refined products saw declines of 1.7 million barrels for gasoline and 341k for distillates in the API figures. The EIA has been showing huge builds also, but isn’t sure where they came from, listing more than 2 million barrels/day of “adjustments” to its inventory levels in the past 2 weeks. Their weekly update is due out at its normal time this morning.
Looking at the April RBOB contract chart (not the continuous RBOB chart that shows the prompt contract each month) we’re already seeing two layers of chart resistance (barriers to prices moving higher) to start the month. There is both a trend line that slants lower from the January highs of $2.85, and comes in today right around $2.65, and the 200 day Moving Average which comes in at $2.6580. If the April contract can settle above those values, the door is open for a 20 cent increase with only a speed bump in the low $2.70s offering resistance near term. If they fail to break those resistance levels however, there’s a good chance we could see slide towards the February low of $2.46, which would also come close to filling the chart gap left behind on the continuous chart from the change for March to April.
ULSD charts don’t seem to have nearly as much potential upside as RBOB, as the 3rd bounce off of $2.66 over the past month is already looking like it may have run out of steam. Colder weather forecast in March, and the potential for a gasoline rally could both help ULSD find buyers again in the coming weeks, but if prices do slide below $2.66, there’s at least 20 cents to fall near term and a slide all the way to $2 can’t be ruled out.
The EIA’s monthly crude oil and natural gas production report showed that domestic production dropped for both in December, marking the first declines in a year as producers struggled with plummeting prices and the big freeze at the end of the month. Stagnant rig counts, and prices dropping further so far in 2023 suggest we may not see those output levels rebound for a while.
A worker at Marathon’s Galveston Bay refinery died after being electrocuted Tuesday. It’s not clear what caused the accident, or if it will impact operations at the facility. That refinery that has an unfortunate track record for worker deaths, most notably the explosion that killed 15 and injured 180 when it was known as BP Texas City 15 years ago. No wonder Marathon changed the name after acquiring it.
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View AllRefined Products Are Moving Lower For A 2nd Day After Coming Under Heavy Selling Pressure In Wednesday’s Session
Refined products are moving lower for a 2nd day after coming under heavy selling pressure in Wednesday’s session. Rapidly increasing refinery runs and sluggish diesel demand both seemed to weigh heavily on product prices, while crude oil is still benefitting from the disruption of exports from Iraq. Prices remain range-bound, so expect more choppy back and forth action in the weeks ahead.
US oil inventories saw a large decline last week, despite another 13-million barrels of oil being found in the weekly adjustment figure, as imports dropped to a 2-year low, and refinery runs cranked up in most regions as many facilities return from spring maintenance.
The refining utilization percentage jumped to its highest level of the year but remains overstated since the new 250,000 barrels/day of output from Exxon’s Beaumont facility still isn’t being counted in the official capacity figures. If you’re shocked that the government report could have such a glaring omission, then you haven’t been paying attention to the Crude Adjustment figure this year, and the artificially inflated petroleum demand estimates that have come with it.
Speaking of which, we’re now just a couple of months away from WTI Midland crude oil being included in the Dated Brent index, and given the uncertainty in the US over what should be classified as oil vs condensate, expect some confusion once those barrels start being included in the international benchmark as well.
Diesel demand continues to hover near the lowest levels we’ve seen for the first quarter in the past 20+ years, dropping sharply again last week after 2 straight weeks of increases had some markets hoping that the worst was behind us. Now that we’re moving out of the heating season, we’ll soon get more clarity on how on road and industrial demand is holding up on its own in the weekly figures that have been heavily influenced by the winter that wasn’t across large parts of the country.
Speaking of which, the EIA offered another mea culpa of sorts Wednesday by comparing its October Winter Fuels outlook to the current reality, which shows a huge reduction in heating demand vs expectations just 6-months ago.
It’s not just domestic consumption of diesel that’s under pressure, exports have fallen below their 5-year average as buyers in South America are buying more Russian barrels, and European nations are getting more from new facilities in the Middle East.
Take a look at the spike in PADD 5 gasoline imports last week to get a feel for how the region may soon be forced to adjust to rapidly increasing refining capacity in Asia, while domestic facilities come under pressure.
Crude Oil Prices Are Trying To Lead Another Rally In Energy Futures This Morning
Crude oil prices are trying to lead another rally in energy futures this morning, while ULSD prices are resisting the pull higher. Stocks are pointed higher in the early going as no news is seen as good news in the banking crisis.
WTI prices have rallied by $10/barrel in the past 7 trading days, even with a $5 pullback last Thursday and Friday. The recovery puts WTI back in the top half of its March trading range but there’s still another $7 to go before the highs of the month are threatened.
Yesterday’s API report seems to be aiding the continued strength in crude, with a 6 million barrel inventory decline estimated by the industry group last week. That report also showed a decline of 5.9 million barrels of gasoline which is consistent with the spring pattern of drawdowns as we move through the RVP transition, while distillates saw a build of 550k barrels. The DOE’s weekly report is due out at its normal time this morning.
Diesel prices seems to be reacting both to the small build in inventories – which is yet another data point of the weak demand so far this year for distillates – and on the back of crumbling natural gas prices that settled at their lowest levels in 2.5 years yesterday and fell below $2/million BTU this morning.
While diesel futures are soft, rack markets across the Southwestern US remain unusually tight, with spreads vs spot markets approaching $1/gallon in several cases as local refiners go through maintenance and pipeline capacity for resupply remains limited. The tightest supply in the region however remains the Phoenix CBG boutique gasoline grade which is going for $1.20/gallon over spots as several of the few refineries that can make that product are having to perform maintenance at the same time.
French refinery strikes continue for a 4th week and are estimated to be keeping close to 1 million barrels/day of fuel production offline, which is roughly 90% of French capacity and almost 1% of total global capacity. That disruption is having numerous ripple effects on crude oil markets in the Atlantic basin, while the impact on refined product supplies and prices remains much more contained than it was when this happened just 5 months ago.
Click here to download a PDF of today's TACenergy Market Talk.