The Roller Coaster Ride Continues

Market TalkThursday, Mar 5 2020
Correlation Between Energy And Equity Prices Strengthens

The roller coaster ride continues, with thousand point swings in the Dow Jones Industrial average and nickel swings in gasoline and diesel futures becoming a daily event as uncertainty over the coronavirus is leaving many people apparently unsure if they should be buying toilet paper or stocks.

Energy futures failed in their second attempt this week to break through overhead resistance, which sets the stage for another drop in prices from a chart perspective, which helps explain why prices are dropping this morning, even though OPEC has agreed to cut production by 1.5 million barrels/day.

The DOE estimates U.S. crude oil production reached a new record high in the past week at 13.1 million barrels/day. That’s one million barrels/day higher than a year ago, and four million barrels/day more than three years ago. Those increases go a long way to explaining why the market doesn’t feel the effects of three of the world’s largest oil producers (Iran, Venezuela and Libya) all operating at a small fraction of their capacity.

Diesel inventories dropped for an eighth straight week as output levels fell to their lowest level in nearly a year. Both the inventory and output levels are following typical seasonal patterns, and we’d expect to see both start increasing over the next few weeks if those patterns hold true this year. With numerous unplanned refinery issues ongoing however, it could take longer this year to see those increases.

Gasoline inventories are also following their typical seasonal pattern, declining for a fifth straight week. Unlike diesel which is trending towards the bottom end of its five year seasonal range, total U.S. gasoline stocks are holding near the top end of their range as a glut of inventory in the middle of the country (PADDs 2, 3 & 4) offset relatively tight inventory on the East and West coasts (PADDs 1&5).

Click here to download a PDF of today's TACenergy Market Talk.

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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.