2021 Starts Off In Volatile Style
2021 started off in volatile style with numerous equity and commodity markets seeing large intraday swings that created out-side down reversal bars on the daily charts, and threatened to break the upward momentum that’s propped up most of those markets the past two months. Equities are following the technical script, with futures pointing lower this morning after experiencing that bearish reversal pattern yesterday, but energy markets are trying to rally again, bucking the textbook trading guideline in the early going.
There’s a trading adage that bull markets don’t end due to bearish news, they end when the market fails to rally on bullish news. That could well be the case for oil and the rest of the energy complex after an Iraqi oil tanker needed emergency assistance over the weekend to defuse a mine attached to its hull. In addition, Iran seized another oil tanker in the Persian gulf and announced it was increasing uranium enrichment. Yet, prices made that large downward reversal on the day after reaching fresh 10 month highs earlier in the session.
Adding to the volatility, OPEC & Friends were unable to reach an agreement Monday, and are meeting again today to try and find a consensus in the first of their new monthly meetings. Reports suggest Russia & the non-OPEC members it represents were pushing for an output increase while Saudi Arabia and the rest of the traditional OPEC delegation wanted to hold firm.
All eyes are on (the U.S. State of) Georgia today as the balance of power in the Senate, hinges on the outcome of two runoff elections. It’s widely believed that the financial markets prefer divided government as a check and balance of any single party’s power, and we should get a good test of that theory as the votes are counted.
RIN values continued their rally, reaching new three year highs in Monday’s trading after the EPA missed another deadline to set 2021 targets for the RFS, leaving that decision for the new administration, who most presume will be less friendly to oil refiners. One note of caution for the RIN rally, both Corn and Soybean prices had large intraday reversals (similar to what we saw in energy and equity markets), which threatened to break the strong rally that’s pushed those crop prices to multi-year highs, and contributed to the strength in renewable credits. Also, don’t forget that refiners bear the brunt of the RFS obligation and as more of them are forced to lower rates, convert units to renewable production, and/or shutter completely, the demand for those credits decreases.
Click here to download a PDF of today's TACenergy Market Talk.
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View AllEnergy Prices Up Over 2% Across The Board This Morning
Refined product futures traded in an 8-10 cent range yesterday with prompt heating oil settling up ~6 cents and RBOB ending up about flat. Oil prices clawed back some of the losses taken in the first two full trading days of the week, putting the price per barrel for US crude back over the $70 mark. Prices are up just over 2% across the board this morning, signifying confidence after the Senate passed the bipartisan debt ceiling bill last night.
The EIA reported crude oil inventories up 4.5 million barrels last week, aided by above-average imports, weakened demand, and a sizeable increase to their adjustment factor. The Strategic Petroleum Reserve continues to release weekly through June and the 355 million barrels remaining in the SPR is now at a low not seen since September 1983. Exports increased again on the week and continue to run well above last year’s record-setting levels through the front half of the year. Refinery runs and utilization rates have increased to their highest points this year, both sitting just above year-ago rates.
Diesel stocks continue to hover around the low end of the 5-year range set in 2022, reporting a build of about half of what yesterday’s API data showed. Most PADDs saw modest increases last week but all are sitting far below average levels. Distillate imports show 3 weeks of growth trending along the seasonal average line, while 3.7 million barrels leaving the US last week made it the largest increase in exports for the year. Gasoline inventories reported a small decline on the week, also being affected by the largest jump in exports this year, leaving it under the 5-year range for the 11th consecutive week. Demand for both products dwindled last week; however, gas is still comfortably above average despite the drop.
The sentiment surrounding OPEC+’s upcoming meeting is they’re not likely to extend oil supply cuts, despite prices falling early in the week. OPEC+ is responsible for a significant portion of global crude oil production and its policy decisions can have a major impact on prices. Some members of OPEC+ have voluntarily cut production since April due to a waning economic outlook, but the group is not expected to take further action next week.
Click here to download a PDF of today's TACenergy Market Talk
Prices Are Mixed This Morning As The Potential Halt In U.S. Interest Rate Hikes
Bearish headlines pushed refined products and crude futures down again yesterday. Prompt RBOB closed the month at $2.5599 and HO at $2.2596 with WTI dropping another $1.37 to $68.09 and Brent losing 88 cents. Prices are mixed this morning as the potential halt in U.S. interest rate hikes and the House passing of the US debt ceiling bill balanced the impact of rising inventories and mixed demand signals from China.
The American Petroleum Institute reported crude builds of 5.2 million barrels countering expectations of a draw. Likewise, refined product inventories missed expectations and were also reported to be up last week with gasoline adding 1.891 million barrels and diesel stocks rising 1.849 million barrels. The market briefly attempted a push higher but ultimately settled with losses following the reported supply increases implying weaker than anticipated demand. The EIA will publish its report at 10am this morning.
LyondellBasell announced plans yesterday to delay closing of their Houston refinery, originally scheduled to shut operations by the end of this year, through Q1 2025. The company “remains committed to ceasing operation of its oil refining business” but the 289,000 b/d facility remaining online longer than expected will likely have market watchers adjusting this capacity back into their balance estimates.
Side note: there is still an ongoing war between Russia and Ukraine. Two oil refineries located east of Russia's major oil export terminals were targeted by drone attacks. The Afipsky refinery’s 37,000 b/d crude distillation unit was struck yesterday, igniting a massive fire that was later extinguished while the other facility avoided any damage. The attacks are part of a series of intensified drone strikes on Russian oil pipelines. Refineries in Russia have been frequently targeted by drones since the start of the military operation in Ukraine in February 2022.