The Highest Inflation Reading In 30 Years
The highest inflation reading in 30 years sparked a round of risk-off selling Wednesday as traders seem concerned that these rising prices can no longer be considered transitory, which will force the FED to tighten its monetary policy sooner than later. Energy and equity markets were both caught up in the selling early in the session, the DOE’s weekly report didn’t help as petroleum futures continued moving lower throughout the day.
The big selloff keeps the rounding top pattern in play for RBOB, with a good chance that we’ll see another 20 cent drop if prices break below $2.25 in the next week or so. WTI and ULSD are more neutral technically that gasoline, and also have a better seasonal outlook, but need to hold above last week’s lows of $2.39 for ULSD and $78 for WTI to avoid another move lower.
The total US petroleum demand estimate for the week dipped below 2020 levels for the first time since March, when we were comparing to pre-lockdown levels. While the DOE’s weekly consumption estimates are notoriously volatile, they did offer a harsh reminder that demand doesn’t only move higher after 18 months of recovery, especially this time of year. Charts from the DOE’s weekly report are below.
OPEC’s monthly oil market report kept forecasted supply and demand figures steady for next year, but like the EIA’s outlook earlier this week noted that gas-to-oil switching for electricity generation should boost demand and prices this winter. The cartel’s oil output continued moving higher in October as they made good on the plan to slowly return production to the global stage. The report also highlighted the recovery in refining margins globally over the past few months that is helping keep some plants that were on the verge of permanently closing still operating.
A surprise agreement between the US & China announced Wednesday may end up being the most meaningful result of the COP26 meetings, as the 2 largest emitters in the world account for roughly 40% of greenhouse gases. As with most of the pledges made at this conference, the details are scarce, and it’s likely to take years before actual changes are made, but the sign of cooperation does open the door to more US exports of LNG replacing Chinese coal, which is arguably the most impactful step available to reduce emissions short term.
We will be attending our company’s annual meeting tomorrow and will not send out an update in the morning.
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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.