The July Rollercoaster Continues
The July rollercoaster continues: We hit 6 year highs, then saw products drop 16 cents in 2 days, only to wipe out almost all of those losses the next 2 days with a strong finish Friday, only to see more selling pressure this morning. US equity markets are also pointed lower after touching fresh record highs last week, with the common culprit of COVID concerns being blamed for the selling in both asset classes.
Throwing in the towel? Money managers made sizeable reductions in their net length across the petroleum complex last week, after weeks of steady buying had pushed the large-speculator’s bets on higher prices at multi-year highs. The timing of the report data (which is compiled using Tuesday’s positions, and reported on Friday) coincides with the heavy selling we saw early in the week, before the big price bounce Wednesday, so it will be interesting to see if they tried to jump back on the bandwagon later in the week, or if this is the start of a larger liquidation that could help bring an end to the 8 month-long price rally.
While petroleum wagers subsided, money managers continued to increase their net length in California Carbon Allowances last week, which appears to be driving the increase in those CCA credits to new all-time highs.
Baker Hughes reported 2 more oil rigs were put to work last week, both of which came in “other” smaller shale plays that don’t get their own classification, while the Permian Basin (which accounts for more than half of all drilling activity in the country) held steady for a 3rd week. With oil prices reaching 6 year highs last week, there will be more focus on the rig count over the next several weeks as US producers engage in a high stakes game of chicken with OPEC producers to see who wants to bring their spare capacity back into the game while risking popping the oil price bubble.
Remember when the IMO 2020 fuel specification change was expected to wreak havoc on global diesel supplies, before COVID made that idea seem quaint? We may be in for version 2.0 of that phenomenon as the EU gets ready to announce major changes to its carbon market this week, which could mean more overhauls for shippers.
Click here to download a PDF of today's TACenergy Market Talk.
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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.