US Inflation 4.9% in April, EIA Expects Lower Summer Pump Prices
Refined products have turned overnight losses into small morning gains in the wake of the April CPI report that showed annual inflation just under 5% for the past year, with energy prices the key force keeping prices in check. The 2nd bounce from early losses in as many days keeps the recovery rally intact, with both gasoline and diesel picking up nearly 25 cents since bottoming out last Thursday.
The EIA lowered its forecast for fuel prices in the latest short term energy outlook predicting that retail gasoline will be 20% lower than last summer, even though prices in April rallied above prior estimates.
The EIA expects the 2nd highest natural gas consumption on record for the US this summer, trailing only last year’s demand as the agency revises its forecasts to include warmer weather outlooks from NOAA.
The API reported a build of 3.6 million barrels of crude oil in the US last week, while distillates saw a decline of 3.9 million barrels and gasoline saw a small increase of less than 400,000 barrels. That report seemed to have put a bit of downward pressure on crude prices, but doesn’t seem to be impacting products, with distillates trading lower most of the overnight session despite the draw. The DOE’s weekly report is due out at its normal time this morning.
Party’s over for shippers? A Bloomberg article Tuesday highlighted the dramatic collapse in oil tanker rates since OPEC’s output cut announcement in March.
While the D4 and D6 RINs that make up the majority of trading have gone nowhere for the past 2 months as traders await the EPA’s final ruling for the RFS in the coming years, D3 cellulosic RINs have seen a healthy recovery following a Reuters report last week that the EPA may delay plans to allow electric vehicle makers to generate “eRINs”.
If you go to the RFS overview on the EPA’s webpage (which pretty much no one does) you can see that this law set a congressional target of 16 billion gallons of cellulosic biofuel blended by 2022, and in reality, less than 1 billion gallons was produced last year, which was the main reason the plan is barely reaching half of its mandated levels today. See tables below.
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Baker Hughes Reported A Net Increase Of 5 Operating Oil Production Rigs Last Week
“Buy The Rumor, Sell The News” Seems To Be The Trading Pattern Of The Week
No Official Word From OPEC Yet On Their Output Agreement For Next Year
Week 48 - US DOE Inventory Recap
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View AllBaker Hughes Reported A Net Increase Of 5 Operating Oil Production Rigs Last Week
NYMEX HO is the sole energy futures contract trading higher this morning, exchanging hands ~1.5 cents higher than Friday’s settlement. It’s refined product counterpart, along with both American and European crude oil benchmarks, are trading lower to start the week. Uncertainty surrounding the plausibility of further, voluntary supply cuts by OPEC+ members is taking credit for the weakness in WTI prices this morning.
Baker Hughes reported a net increase of 5 operating oil production rigs last week, bringing the total number of active platforms to 505. While this is good news for US energy security and for any producer that managed to hedge future production north of $100, others are viewing the increase in drilling as an incremental environmental hazard.
The fight over year-round access to E15 is raging on in the Midwest. Eight states in the breadbasket are pushing the EPA to reduce restrictions on the purchase of the increased ethanol ratio fuel. The Attorneys General from Iowa and Nebraska are asking a regional court to force the EPA’s ruling while the Agency claims it needs more time.
Money managers increased their net long position in both gasoline and diesel futures last week. Bets to the downing increased for WTI, however, as speculators bank on the latest round of supply cuts by OPEC+ being much ado about nothing.
Click here to download a PDF of today's TACenergy Market Talk.
“Buy The Rumor, Sell The News” Seems To Be The Trading Pattern Of The Week
“Buy the Rumor, Sell the News” seems to be the trading pattern of the week as oil and refined products dropped sharply Thursday after OPEC & Friends announced another round of output cuts for the first quarter of next year.
Part of the reason for the decline following that report is that it appears that the cartel wasn’t able to reach an official agreement on the plan for next year, prompting those that could volunteer their own production cuts without forcing restrictions on others. In addition, OPEC members not named Saudi Arabia are notorious for exceeding official quotas when they are able to, and Russia appears to be (surprise) playing games by announcing a cut that is made up of both crude oil and refined products, which are already restricted and thus allow an incremental increase of exports.
Diesel futures are leading the way lower this morning, following a 13-cent drop from their morning highs Thursday, and came within 3-cents of a new 4-month low overnight. The prompt contract did leave a gap on the chart due to the backwardation between December and January contracts, which cut out another nickel from up front values.
Gasoline futures meanwhile are down 15-cents from yesterday’s pre-OPEC highs and are just 7-cents away from reaching a new 1-year low.
Cash markets across most of the country are looking soft as they often do this time of year, with double digit discounts to futures becoming the rule across the Gulf Coast and Mid Continent. The West Coast is mixed with diesel prices seeing big discounts in San Francisco, despite multiple refinery upsets this week, while LA clings to small premiums.
Ethanol prices continue to hold near multi-year lows this week as controversy over the fuel swirls. Corn growing states filed a motion this week trying to compel the courts to force the EPA to waive pollution laws to allow E15 blends. Meanwhile, the desire to grow even more corn to produce Jet Fuel is being hotly debated as the environmental impacts depend on which side of the food to fuel lobby you talk to.
The chaotic canal congestion in Panama is getting worse as authorities are continuing to reduce the daily number of ships transiting due to low water levels. Those delays are hitting many industries, energy included, and are now spilling over to one of the world’s other key shipping bottlenecks.
Click here to download a PDF of today's TACenergy Market Talk.
No Official Word From OPEC Yet On Their Output Agreement For Next Year
Energy prices are pushing higher to start Thursday’s session after a big bounce Wednesday helped the complex maintain its upward momentum for the week.
There’s no official word from OPEC yet on their output agreement for next year, but the rumor-mill is in high gear as always leading up to the official announcement, if one is actually made at all. A Reuters article this morning suggests that “sources” believe Saudi Arabia will continue leading the cartel with a voluntary output cut of around 1-million BPD to begin the year and given the recent drop in prices that seems like a logical move.
We saw heavy selling in the immediate wake of the DOE’s weekly report Wednesday, only to see prices reverse course sharply later in the day. ULSD was down more than 9-cents for a few minutes following the report but bounced more than 7-cents in the afternoon and is leading the push higher this morning so far.
It’s common to see demand drop sharply following a holiday, particularly for diesel as many commercial users simply shut down their operations for several days, but last week’s drop in implied diesel demand was one of the largest on record for the DOE’s estimates. That drop in demand, along with higher refinery runs, helped push diesel inventories higher in all markets, and the weekly days of supply estimate jumped from below the 5-year seasonal range around 25 days of supply to above the high end of the range at 37 days of supply based on last week’s estimated usage although it’s all but guaranteed we’ll see a correction higher in demand next week.
Gasoline demand also slumped, dropping to the low end of the seasonal range, and below year-ago levels for the first time in 5-weeks. You’d never guess that based on the bounce in gasoline prices that followed the DOE’s report however, with traders appearing to bet that the demand slump in a seasonal anomaly and tighter than average inventories may drive a counter-seasonal price rally.
Refinery runs increased across the country as plants returned to service following the busiest fall maintenance season in at least 4-years. While total refinery run rates are still below last year’s levels, they’re now above the 5-year average with more room to increase as no major upsets have been reported to keep a large amount of throughput offline.
The exception to the refinery run ramp up comes from PADD 4 which was the only region to see a decline last week after Suncor apparently had another inopportune upset at its beleaguered facility outside Denver.
The 2023 Atlantic Hurricane season officially ends today, and it will go down as the 4th most active season on record, even though it certainly didn’t feel too severe given that the US dodged most of the storms.
Today is also the expiration day for December 2023 ULSD and RBOB futures so look to the January contracts (RBF and HOF) for price direction if your market hasn’t already rolled.
More refineries ready to change hands next year? With Citgo scheduled to be auctioned off, Irving Oil undergoing a strategic evaluation, and multiple new refineries possibly coming online, 2024 was already looking to be a turbulent year for refinery owners. Phillips 66 was indicating that it may sell off some of its refinery assets, but a new activist investor may upend those plans, along with the company’s directors.