The Recovery Rally Continues In Energy Markets To Start Wednesday’s Session

Market TalkWednesday, Dec 14 2022
Pivotal Week For Price Action

The recovery rally continues in energy markets to start Wednesday’s session, with diesel futures up nearly 40 cents/gallon already this week, while gasoline futures are up 12, and WTI is up more than $5/barrel. 

less strong inflation reading, which is helping push the dollar lower, the reopening of Chinese cities, and some surprisingly positive notes on the global economy from OPEC and the IEA are all seeming to contribute to the fundamental argument for this rebound which is about to face its first technical test to the upside as ULSD and WTI run into the downward sloping trend-line formed over the past 6 weeks of selling.  

So far today traders are shrugging off the API report that showed inventory builds across the board last week. Crude oil stocks saw a large build of 7.8 million barrels (more than half of which can be attributed to the latest SPR release) while distillates increased by 3.9 million and gasoline inventories ticked up by 877,000 barrels. The EIA’s weekly report is due out at its normal time, but based on the lack of API reaction, and the looming FOMC announcement this afternoon, it may have less impact than normal.

OPEC reported its crude oil output dropped by 744,000 barrels/day in November as Saudi Arabia, UAE, Kuwait and Iraq made good on their agreement to cut output, while others like Venezuela and Libya continue to struggle with production. The cartel’s outlook for demand was increased as GDP figures for both the US and Europe surpassed expectations, which helped offset the impact of the lockdowns in China. The report also highlighted the rapidly changing forward curves for crude oil and refined products after months of steep backwardation, and the rapidly declining refining margins as output surges following the end of a busy fall maintenance season. Last but certainly not least, the OPEC report noted that the tanker market remains very strong as the “…ongoing shift to longer haul routes due to trade dislocations [aka Russia] limited tanker availability.”

The IEA’s monthly oil market report increased global demand estimates for the end of this year, and next, as strong gasoil (aka diesel) usage due to gas-to-oil switching offsets economic weakness in Europe and Asia. This report also highlighted the rapid drop in refining margins as November production globally surged to the highest levels since the early days of the COVID outbreak. The IEA summarized the outlook for the next few months by saying that while seasonal factors and economic concerns have pushed prices lower for now, another price rally can’t be ruled out as the full impact of the Russian embargoes next year remains to be seen.

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Market Talk Update 12.14.22

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Pivotal Week For Price Action
Market TalkWednesday, Jun 7 2023

Energy 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.

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Pivotal Week For Price Action
Pivotal Week For Price Action
Market TalkTuesday, Jun 6 2023

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.