The Rally In Energy Prices Is Facing Its Biggest Test Of The Past 2 Months
The rally in energy prices is facing its biggest test of the past 2 months, with the price action over the next few days looking to be pivotal for the weeks ahead. NYMEX futures survived their biggest daily selloff since the Black Friday Omicron meltdown Tuesday, and managed to hold above their bullish trend-lines on the weekly charts, which keeps the door open for another rally in the next few weeks if prices can sustain near current levels. Then again, there are still signs that the selling may not be over, as we saw a heavy wave of selling around 7am central that pushed ULSD down 2.5 cents and RBOB more than a penny on the day, but those losses only lasted around 10 minutes before recovering to the overnight range.
The API reported inventory draws across the board last week in its Tuesday afternoon report, which seemed to temporarily help the market find a bid, but that proved short-lived as the selling picked up again overnight. The EIA’s weekly report is due out at its normal time this morning. We are near the point where gasoline inventories usually peak out before drawing down ahead of the spring RVP transition, and with reports of heavy buying ahead of last week’s winter storm, we could see stocks make the turn this week.
Diesel stocks are also likely to see further declines, even though ULSD calendar spreads continue to pull back, but calendar spreads remain in the steepest backwardation since 2008, when futures rallied north of $4/gallon in July before crashing to $1/gallon in December. John Kemp of Reuters is arguing this morning that diesel has become a key signal of inflation in the US, and tight supplies could continue to drive prices higher. Meanwhile, a Bloomberg article earlier this week highlighted that several commodities are seeing similar curves as supply chains struggle to match current demand.
The reports that progress in the Iran nuclear negotiations are driving the pullback in prices this week continue, even as Iran decided now was a good time to publicly display a new long range missile system which all but ensures that any agreement, if any is reached, will not be taken seriously.
Week 8 - US DOE Inventory Recap
The Latest Warmer-Than-Expected Winter Has Driven Natural Gas Prices To The Lowest Level Seen Since The NG Futures
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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.
Week 8 - US DOE Inventory Recap
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.