ULSD Pushes to 6-Month Highs, Bears Falter
Diesel futures saw a modest pullback Friday, but still managed to reach a fresh 6 month high and settle with a 6th consecutive week of gains. The light selling has carried through to push prices into the red this morning, while gasoline futures cling to small gains.
The bears seem to have been throwing in the towel with heavy short covering a theme for large speculators with bets on lower price declining by more than 25% in RBOB, Brent and Gasoil contracts in just 1 week. Buy high, sell higher? New length was also added across the board, pushing the net length held by money managers to fresh multi-month, and in a few cases multi-year highs.
Baker Hughes reported another decline in the US drilling rig count last week, losing a net 4 oil rigs while the natural gas count held steady. Texas led the decline again, losing 8 rigs, and it’s hard to blame the operators if you stop and think about what it’s like to work outside in West and South Texas during this most recent heat wave. The total oil rig count is now at its lowest level since March 2022.
So far global energy markets seem to be shrugging off reports that oil infrastructure has come to the front lines of the war in Ukraine. Last week we saw a major Russian oil port and an oil tanker near the Black Sea targeted by drones, with threats that other ports were also at risk. There are also reports that Russia is planning a false flag operation at a Belarusian refinery to draw that country further into the conflict.
Something to watch this week: The July CPI report is due out Thursday and given the strong rally in energy prices – which had been the big inflation buster over the past year – the market could be in for a rude awakening on the persistently high prices despite central banks raising rates to their highest levels in more than 20 years.
More bad news for Suncor. As if the comedy of errors in the past year weren’t bad enough, the EPA Friday said the state of Colorado must revise its permit renewal for the beleaguered Commerce City refinery complex to ensure compliance with carbon monoxide and opacity limits. This comes ahead of the state’s mandated change to reformulated gasoline grades beginning in 2024 to meet the pollution standards set in the Clean Air Act, which seems like a big hurdle to clear for a facility that’s struggling just to operate at all.
It's Another Mixed Start For Energy Futures This Morning After Refined Products Saw Some Heavy Selling Wednesday
Week 8 - US DOE Inventory Recap
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
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.