Tidal Wave Of Selling Knocked 5% Off Petroleum Contracts
If you like lower prices there’s plenty to be thankful for this week, after a tidal wave of selling Tuesday knocked more than 5% off of most petroleum contracts, pushing prices to their lowest levels of the year. Unfortunately for most with a 401K plan, that drop coincided with another large sell-off in US equities.
Reports that the US President planned to take it easy on Saudi Arabia over the killing of journalist Jamal Khashoggi (and noting the important role the kingdom plays in keeping oil prices in check) seemed to at least take fears of tension between 2 of the 3 largest oil producing nations off the table, and sparked speculation that there could be some quid-pro-quo on future supply decisions.
The big question: Did Tuesday’s melt-down mark the bottom for energy prices? Today’s good read from Seeking Alpha gives 3 reasons why that may be the case. 1. China will soon end its oil destocking that’s helped inflate global inventories. 2. OPEC is preparing to cut production. 3. Speculators are back to a neutral stance in energy contracts after weeks of mass liquidation.
For those looking for reasons why the selling may continue, look at the increasing oil output expected from Russia & the US on the supply side of the equation, and on the demand side, take a look at why the OECD thinks that growth in the global economy will slow next year.
CME/NYMEX futures will trade in abbreviated sessions both Thursday and Friday (no settlements Thursday) but physical spot market assessments won’t be made and most US companies will be closed, so most rack prices will hold steady through Monday.
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Week 17 - US DOE Inventory Recap
The Energy Complex Is Trading Modestly Lower So Far This Morning With WTI Crude Oil Futures Leading The Way
The energy complex is trading modestly lower so far this morning with WTI crude oil futures leading the way, exchanging hands $1.50 per barrel lower (-1.9%) than Tuesday’s settlement price. Gasoline and diesel futures are following suit, dropping .0390 and .0280 per gallon, respectively.
A surprise crude oil build (one that doesn’t include any changes to the SPR) as reported by the American Petroleum Institute late Tuesday is taking credit for the bearish trading seen this morning. The Institute estimated an increase in crude inventories of ~5 million barrels and drop in both refined product stocks of 1.5-2.2 million barrels for the week ending April 26. The Department of Energy’s official report is due out at it’s regular time (9:30 CDT) this morning.
The Senate Budget Committee is scheduled to hold a hearing at 9:00 AM EST this morning regarding a years-long probe into climate change messaging from big oil companies. Following a 3-year investigation, Senate and House Democrats released their final report yesterday alleging major oil companies have internally recognized the impacts of fossil fuels on the climate since as far back as the 1960s, while privately lobbying against climate legislation and publicly presenting a narrative that undermines a connection between the two. Whether this will have a tangible effect on policy or is just the latest announcement in an election-yeardeluge is yet to be seen.
Speaking of deluge, another drone attack was launched against Russian infrastructure earlier this morning, causing an explosion and subsequent fire at Rosneft’s Ryazan refinery. While likely a response to the five killed from Russian missile strikes in Odesa and Kharkiv, Kyiv has yet to officially claim responsibility for the attack that successfully struck state infrastructure just 130 miles from Moscow.
The crude oil bears are on a tear this past week, blowing past WTI’s 5 and 10 day moving averages on Monday and opening below it’s 50-day MA this morning. The $80 level is likely a key resistance level, below which the path is open for the American oil benchmark to drop to the $75 level in short order.
Click here to download a PDF of today's TACenergy Market Talk.
Energy Futures Are Drifting Quietly Higher This Morning
Energy futures are drifting quietly higher this morning as a new round of hostage negotiations between Israel and Hamas seem to show relative promise. It seems the market is focusing on the prospect of cooler heads prevailing, rather than the pervasive rocket/drone exchanges, the latest of which took place over Israel’s northern border.
A warmer-than-expected winter depressed diesel demand and, likewise, distillate refinery margins, which has dropped to its lowest level since the beginning of 2022. The ULSD forward curve has shifted into contango (carry) over the past month as traders seek to store their diesel inventories and hope for a pickup in demand, domestic or otherwise.
The DOE announced it had continued rebuilding it’s Strategic Petroleum Reserve this month, noting the addition of 2.3 million barrels of crude so far in April. Depending on what the private sector reported for last week, Wednesday’s DOE report may put current national crude oil inventories (include those of the SPR) above the year’s previous levels, something we haven’t seen since April of 2022, two months after Ukraine war began.
The latest in the Dangote Refinery Saga: Credit stall-out, rising oil prices, and currency exchange.
Click here to download a PDF of today's TACenergy Market Talk.