The Great Debate Of Global Oil Supply Continues

Market TalkTuesday, Apr 16 2019
Bulls Have Taken Back Control Of Energy Markets

Energy futures are treading water this morning, ahead of the weekly inventory reports. The great debate of global oil supply continues, with bulls suggesting that production cuts by OPEC & Russia, whether intentional or not, could push oil to $100 while bears will note that spare production capacity and a global economic slowdown are more likely to push prices to $40.

After a strong rally, there are finally signs that the spring rally for gasoline prices may finally be ending. California retail prices have surpassed $4/gallon in many markets as spot prices approached $2.70 last week, but have since dropped by nearly 30 cents as resupplies begin to arrive. With the RVP transition and a busy refinery maintenance schedule already behind us, and the most speculative bets ever for this time of year on gasoline prices going higher, it’s becoming easier to see why spot gasoline prices may have more room to fall in the coming week. From a technical perspective, if May RBOB can’t hold above $2 this week, it looks like we could see attempt to sell-off closer to $1.80 in the next few weeks.

Some options for reading while we await the inventory reports:

- EIA: It took 11 years for Tiger to win another major the US to break its annual energy consumption record set in 2007.

- Despite falling rig counts in Q1, US shale oil production is still poised to reach new record highs in May, according to the EIA’s drilling productivity report.

- Dallas FED: How online shopping and employment trends have changed inflation patterns.

- The fight for market share: Saudi Aramco is taking a $1.2 billion stake in a Korean refining and shipping conglomerate, giving the Kingdom a guaranteed outlet for more of its oil exports.

CLICK HERE for a PDF of today's charts

The Great Debate Of Global Oil Supply Continues gallery 0

News & Views

View All
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.