Back And Forth Intraday Action
After a lot of back and forth intraday action the energy complex finally decided to end the day down slightly; although it didn’t feel like lower prices were agreed upon, more like that’s where they happened to be when time ran out. The benchmark crude grades WTI and Brent lead prices lower, both shaving a dollar off during formal trading hours Monday, with American gas and diesel prices lagging behind, down 86 points and 1.85 cents respectively.
In what seems like a more intentional move this morning, refined product prices are bouncing, erasing earlier losses and challenging yesterday’s highs. Monday’s conversations between Russia and OPEC on the possibility of the non-cartel member collaborating in further production cuts present the market with mixed outlooks: Russia’s Energy Minister leaving conversation and options open while watching how June unfolds, hinting that cuts on their end could still happen, opposite the Russian President asserting cuts are not necessary due to the country’s economic makeup. Whether decisions on oil production will be made based on the economic principles or back room political bargaining has yet to be determined.
Regional flooding had temporarily shut down one of Colonial’s major spur lines on Saturday, branching off of the main pipeline to service the southern half of Georgia, but it has since been restarted, limiting a potential supply shortage. Although the National Oceanic and Atmospheric Administration is predicting a “normal” hurricane season this year, consisting of 9-15 named storms including 4-8 hurricanes, this is hardly good news for saturated East Coast and Midwest regions. With no hurricane activity forecasted in the near term, how and if these regions can dry out before being subjected to tropical downfalls is the biggest question facing physical prices.
After a two month long selloff in energy prices, futures are trending higher the past 5 trading session, challenging their first level of support-turned- resistance. NYMEX HO contact will see its first hurdle to higher prices at the upper end of 1.83, which if broken will allow prices about 7 cents of legroom. RBOB on the other hand has resistance levels all huddled around 1.79, making a run at the higher 1.80s seem a little more daunting.
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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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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.