ULSD Wiped Out The 8 Cent Gains From Tuesday
Energy contracts were trying to bounce to start Thursday’s session after another heavy wave of selling knocked them sharply lower on Wednesday and saw ULSD wipe out the 8 cent gains from Tuesday.
WTI has traded lower for 6 consecutive trading sessions, but still doesn’t look overly bearish on the charts, as it remains above the lows set in each of the prior 3 months. That said, the contract is “only” $5 away from setting new lows for the past year, and if the December support near $70 breaks, there’s not much on the charts to stop a slide to $62.
Russia is trying to stop the slide in oil prices, with reports suggesting plans to cut exports from Western ports by 25%, in excess of the already announced production cuts. The relative lack of reaction to that latest attempt to stir the oil pot is yet another sign of the weak market sentiment compared to a year ago when the war broke out.
ULSD still looks the most bearish on the charts, even though fundamentally there’s a strong argument that diesel stocks remain in the most precarious position. Even with today’s modest gains, ULSD prices are just 7 cents off of their lows for the past 12 months and if the $2.66 range fails to hold it looks like there’s a good chance, we’ll see a quick move towards $2.50.
The API reported another large build in US Crude stocks of nearly 10 million barrels last week, adding to last week’s estimate of a 10.5-million-barrel gain. The API’s figures seem to be catching up to the EIA’s data that showed stocks swelled by 16 million barrels last week as refiners cut runs due to heavy maintenance scheduled and numerous unplanned outages. The API also estimated small builds in gasoline and diesel inventories, in line with seasonal expectations. The EIA’s report is due out at 11am Eastern.
California’s LCFS credits spiked to a 6 month high this week after CARB suggested it would propose accelerating its emissions reduction targets this week to prop up prices that have come under steady selling pressure over the past 2 years thanks to a surge in renewables production. The $20 increase in credits this week adds roughly 2.5 cents/gallon to the cost of each gasoline and diesel (which create a deficit under the program) sold in the state but increases the value of Renewable Diesel by 10-13 cents/gallon depending on the CI value of the product.
California’s Cap and Trade program credits (CCAs) didn’t move on this news, as that program has a set credit amount, rather than a mechanism for renewable producers to create credits. The February CCA auction results are expected later this afternoon, which can be a market moving event depending on where prices settled out in the quarterly auction vs where they’ve been trading in the open market.
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.