Trade Deals And Output Cuts Pushing Petroleum Prices Higher

Market TalkMonday, Dec 3 2018
DOE Week 48 - 2018 Report

A flurry of headlines on trade deals and output cuts is pushing petroleum prices sharply higher to start the week. Refined products are up more than a nickel at the moment, after trading up nearly 8 cents overnight as both energy and equity markets are finding reasons to rally. Here’s are the highlights:

China & US taking a break from trade tantrums: Bullish economic activity, reduces the risk of recession & the drop in demand that would come with it.

Russia & OPEC agree to extend supply cuts. Bullish…at least until they announce the details, which haven’t been agreed to yet.

Qatar leaving OPEC: Neutral? This could be a bigger story in natural gas markets given Qatar’s status, but for now doesn’t seem as though it will impact supplies.

Canada is imposing temporary output cuts in Alberta: Any output cut is bullish oil prices, but this reaction to pipeline bottlenecks may have more impact on US refinery margins than it does on outright prices as the extreme discounts in WCS has given a huge advantage to any plants with access to those distressed barrels.

New congress, new threats to North American Trade? Neutral for now. It’s impossible to say how the negotiations in congress will turn out. Oil & refined product flows between the US, Mexico and Canada have been increasing over the past decade so the pressure will be high to get a deal done.

Baker Hughes Rig Count: 2 more oil rigs put to work last week, marking a 5th consecutive month of increases. The price drop in the past 2 months suggests we may see rig counts level off or begin to dip early in 2019. Neutral. One consequence of record high US Oil production? Sellers in W. Texas are actually having to pay people to take their natural gas.

Commitment of traders: WTI and RBOB snapped their streak of money manager liquidations (it’s probably no coincidence this happened the same week that both contracts had a weekly gain for the first time in 2 months) while Brent and ULSD continued to see reduced speculative bets on higher prices. Bullish. Fund liquidation was a major theme during the fall sell-off. Now that those large speculators presumably have dry powder, they could easily push prices higher should they choose to begin buying again.

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Market TalkThursday, Mar 30 2023

Refined Products Are Moving Lower For A 2nd Day After Coming Under Heavy Selling Pressure In Wednesday’s Session

Refined products are moving lower for a 2nd day after coming under heavy selling pressure in Wednesday’s session. Rapidly increasing refinery runs and sluggish diesel demand both seemed to weigh heavily on product prices, while crude oil is still benefitting from the disruption of exports from Iraq. Prices remain range-bound, so expect more choppy back and forth action in the weeks ahead.

US oil inventories saw a large decline last week, despite another 13-million barrels of oil being found in the weekly adjustment figure, as imports dropped to a 2-year low, and refinery runs cranked up in most regions as many facilities return from spring maintenance.

The refining utilization percentage jumped to its highest level of the year but remains overstated since the new 250,000 barrels/day of output from Exxon’s Beaumont facility still isn’t being counted in the official capacity figures. If you’re shocked that the government report could have such a glaring omission, then you haven’t been paying attention to the Crude Adjustment figure this year, and the artificially inflated petroleum demand estimates that have come with it.

Speaking of which, we’re now just a couple of months away from WTI Midland crude oil being included in the Dated Brent index, and given the uncertainty in the US over what should be classified as oil vs condensate, expect some confusion once those barrels start being included in the international benchmark as well.  

Diesel demand continues to hover near the lowest levels we’ve seen for the first quarter in the past 20+ years, dropping sharply again last week after 2 straight weeks of increases had some markets hoping that the worst was behind us. Now that we’re moving out of the heating season, we’ll soon get more clarity on how on road and industrial demand is holding up on its own in the weekly figures that have been heavily influenced by the winter that wasn’t across large parts of the country.

Speaking of which, the EIA offered another mea culpa of sorts Wednesday by comparing its October Winter Fuels outlook to the current reality, which shows a huge reduction in heating demand vs expectations just 6-months ago.  

It’s not just domestic consumption of diesel that’s under pressure, exports have fallen below their 5-year average as buyers in South America are buying more Russian barrels, and European nations are getting more from new facilities in the Middle East.

Take a look at the spike in PADD 5 gasoline imports last week to get a feel for how the region may soon be forced to adjust to rapidly increasing refining capacity in Asia, while domestic facilities come under pressure

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
Market TalkWednesday, Mar 29 2023

Crude Oil Prices Are Trying To Lead Another Rally In Energy Futures This Morning

Crude oil prices are trying to lead another rally in energy futures this morning, while ULSD prices are resisting the pull higher. Stocks are pointed higher in the early going as no news is seen as good news in the banking crisis.

WTI prices have rallied by $10/barrel in the past 7 trading days, even with a $5 pullback last Thursday and Friday. The recovery puts WTI back in the top half of its March trading range but there’s still another $7 to go before the highs of the month are threatened. 

Yesterday’s API report seems to be aiding the continued strength in crude, with a 6 million barrel inventory decline estimated by the industry group last week. That report also showed a decline of 5.9 million barrels of gasoline which is consistent with the spring pattern of drawdowns as we move through the RVP transition, while distillates saw a build of 550k barrels. The DOE’s weekly report is due out at its normal time this morning. 

Diesel prices seems to be reacting both to the small build in inventories – which is yet another data point of the weak demand so far this year for distillates – and on the back of crumbling natural gas prices that settled at their lowest levels in 2.5 years yesterday and fell below $2/million BTU this morning. 

While diesel futures are soft, rack markets across the Southwestern US remain unusually tight, with spreads vs spot markets approaching $1/gallon in several cases as local refiners go through maintenance and pipeline capacity for resupply remains limited. The tightest supply in the region however remains the Phoenix CBG boutique gasoline grade which is going for $1.20/gallon over spots as several of the few refineries that can make that product are having to perform maintenance at the same time. 

French refinery strikes continue for a 4th week and are estimated to be keeping close to 1 million barrels/day of fuel production offline, which is roughly 90% of French capacity and almost 1% of total global capacity. That disruption is having numerous ripple effects on crude oil markets in the Atlantic basin, while the impact on refined product supplies and prices remains much more contained than it was when this happened just 5 months ago.

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

Pivotal Week For Price Action