Refinery Runs Dipped Another 116,000 Barrels Per Day But Remain Above Seasonal Average Levels
The energy complex settled down an average of 3.6% across the board yesterday, with WTI leading the group at a $3.02 loss sending the contract back below the $70 mark. Prompt month gas and heating oil contracts lost 7.4 and ~10 cents, respectively. The losses continue this morning as fears from foreign central banks increasing rates yesterday leave recession a possibility.
The DOE reported crude stocks (excluding the SPR) drew by 3.8 million barrels, with reduced imports, a 39% increase in already high exports, and petroleum demand hitting its highest point this year. However, the market shrugged off the inventory drop, appearing to be more focused on the current foreign and future U.S. interest rate hikes that could impact demand.
Refinery runs dipped another 116,000 barrels per day but remain above seasonal average levels. The total utilization rate also declined slightly and is more in line with expectations with the newly included PADD 3 capacity reported the week prior. The EIA released their annual Refinery Capacity Report Wednesday showing an increase in U.S. refining capacity, bucking a two-year downward trend attributable to the pandemic and other disruptive factors. It’s important to keep in mind this report doesn’t include Exxon’s 250,000 b/d expansion at their Beaumont facility, which started up in March this year, because it wasn’t operable at the beginning of 2023.
Refined products showed moderate builds of 434,000 bbls of diesel and 479,000 bbls of gas, despite above average demand for both products. Gas production saw a 3.5% decline and all five PADDs are sitting well below their 5-year averages. Diesel inventories also remain below average with PADD 5 looking particularly low, although the exclusion of renewables plays a role in skewing those figures.
Tropical depression four (known as “Invest 93L” while only a tropical disturbance) is still out to sea and well east of land but strengthened into tropical storm Cindy overnight. We’re off to a hot start for hurricane season: this storm, on the heels of Bret, marks the first time in recorded history that two tropical cyclones have formed east of the Lesser Antilles islands during the month of June.
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View AllThe Energy Bulls Are On The Run This Morning, Lead By Heating And Crude Oil Futures
The energy bulls are on the run this morning, lead by heating and crude oil futures. The November HO contract is trading ~7.5 cents per gallon (2.3%) higher while WTI is bumped $1.24 per barrel (1.3%) so far in pre-market trading. Their gasoline counterpart is rallying in sympathy with .3% gains to start the day.
The October contracts for both RBOB and HO expire today, and while trading action looks to be pretty tame so far, it isn’t a rare occurrence to see some big price swings on expiring contracts as traders look to close their positions. It should be noted that the only physical market pricing still pricing their product off of October futures, while the rest of the nation already switched to the November contract over the last week or so.
We’ve now got two named storms in the Atlantic, Philippe and Rina, but both aren’t expected to develop into major storms. While most models show both storms staying out to sea, the European model for weather forecasting shows there is a possibility that Philippe gets close enough to the Northeast to bring rain to the area, but not much else.
The term “$100 oil” is starting to pop up in headlines more and more mostly because WTI settled above the $90 level back on Tuesday, but partially because it’s a nice round number that’s easy to yell in debates or hear about from your father-in-law on the golf course. While the prospect of sustained high energy prices could be harmful to the economy, its important to note that the current short supply environment is voluntary. The spigot could be turned back on at any point, which could topple oil prices in short order.
Click here to download a PDF of today's TACenergy Market Talk.
Gasoline And Crude Oil Futures Are All Trading Between .5% And .8% Lower To Start The Day
The energy complex is sagging this morning with the exception of the distillate benchmark as the prompt month trading higher by about a penny. Gasoline and crude oil futures are all trading between .5% and .8% lower to start the day, pulling back after WTI traded above $95 briefly in the overnight session.
There isn’t much in the way of news this morning with most still citing the expectation for tight global supply, inflation and interest rates, and production cuts by OPEC+.
As reported by the Department of Energy yesterday, refinery runs dropped in all PADDs, except for PADD 3, as we plug along into the fall turnaround season. Crude oil inventories drew down last week, despite lower runs and exports, and increased imports, likely due to the crude oil “adjustment” the EIA uses to reconcile any missing barrels from their calculated estimates.
Diesel remains tight in the US, particularly in PADD 5 (West Coast + Nevada, Arizona) but stockpiles are climbing back towards their 5-year seasonal range. It unsurprising to see a spike in ULSD imports to the region since both Los Angeles and San Francisco spot markets are trading at 50+ cent premiums to the NYMEX. We’ve yet to see such relief on the gasoline side of the barrel, and we likely won’t until the market switches to a higher RVP.