A Mixed Bag To Start The Week

Market TalkMonday, Aug 3 2020
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It’s a mixed bag to start the week for energy prices with modest overnight losses turning to small gains for refined products while crude oil prices continue going nowhere. 

While WTI and ULSD futures remain entrenched in their sideways trading pattern, RBOB gasoline futures are teetering on the edge of a breakdown that could send prices below the one dollar mark. With the summer driving season coming to an end, more questions than answers on the outlook for reopening this fall, and inventories holding near record high levels, it’s easy to make a fundamental argument for weaker gasoline prices as we start the RVP transition. That sets up an interesting test for early August trading, will RBOB’s weakness pull the rest of the petroleum contracts lower, or will gasoline avoid a collapse due to the strength in crude and diesel?

Right on cue, RBOB prices have bounced more than three cents from their overnight lows, although it’s unclear so far what’s driving that recovery. It could be some news in the past couple days of refinery closures, the storm heading up the eastern seaboard, or perhaps just a bit of bottom fishing after prices have reached their lowest levels in a month.  

Marathon had several big news items to go along with its Q2 earnings report. The company announced it was indefinitely idling the Martinez, CA and Gallup, NM plants that had been closed due to COVID demand impacts, and had finally reached a deal to sell its Speedway retail chain to 7-11’s parent company. It’s worth noting that Marathon is considering transitioning the Martinez plant and its Dickinson, ND plant to renewable diesel facilities, similar to what Holly announced for its Cheyenne, WY facility recently.

In addition to those closures, several reports are confirming that Calcasieu Refining began idling its LA facility over the weekend due to the demand/margin impacts of COVID. Several of the Q2 earnings calls suggest the industry expects more of these closures to happen before the pandemic is past, but for now everyone is just guessing where the next one might be.

Hurricane Isaias has stayed far enough offshore as it moved up the east coast of Florida to spare that state from the worst of its damaging winds and storm surge, but now is expected to hit the Carolina's overnight and then dump large amounts of rain all along the east coast into New England. Given the major population centers now in the storm’s sites, this system could be a demand killer as even more drivers will stay at home for day or two as it passes. There’s another system the NHC is giving a 60 percent chance of formation this week, but so far that system is expected to stay out to sea and not hit the U.S.

After reporting the first increase in more than three months in last week’s report, Baker Hughes reported the U.S. oil rig count decreased by one in its latest release. The Permian basin saw its count drop by two rigs, while the Bakken saw a one rig increase, the first tick higher in that basin since January.

Money managers continue to be hesitant about petroleum contracts, making small reductions in WTI, Brent, RBOB and Gasoil net length, while ULSD saw a minor reduction in its net short position.  Brent Open interest dropped nearly six percent on the week, as producers lowered their hedge positions to the lowest levels in more than four years. That reduction in producer shorts suggests that either the industry is willing to bet prices probably won’t fall from current levels, or that they don’t plan on producing as much in the near term. 

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Market TalkFriday, Jun 2 2023

Energy 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.

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Pivotal Week For Price Action
Market TalkThursday, Jun 1 2023

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.

Pivotal Week For Price Action
Market TalkThursday, Jun 1 2023

Week 22 - US DOE Inventory Recap