Biggest Declines Of The Year For Some Stock Indices
Energy and equity markets are seeing a modest recovery bounce this morning after Monday’s heavy selling that saw the biggest declines of the year for some stock indices. Contagion fears and FED uncertainty continue to be the major themes roiling markets this week, but as the Volatility index chart below shows, those themes are bothering stock markets more than they are energy.
There’s an interesting phenomenon happening on the diesel forward curve over the past week. While prompt month prices hold near 3 year highs, values 1 year forward and beyond have dipped below where they were trading a month ago. That could be a sign that diesel producers (aka oil refiners) are getting comfortable locking in crack spreads at current levels as the net short position held by the producers & merchant trade category is hovering near a 3 year low. WTI is seeing a similar pricing phenomenon with the forward curve moving into a steeper backwardation.
Unlike diesel however, crude oil is not seeing hedging increases by producers. In fact, the producer/merchant category is net long WTI, and the swap dealer short position hasn’t moved much in several months, suggesting the price action has more to do with extended outages in the Gulf of Mexico from Ida, than a desire by producers to lock in values around $70, even though they were more willing to lock in a year ago when prices were only at $40.
Tropical Storms Peter & Rose continue to churn across the Atlantic, but don’t appear to be a threat to the US. The system that’s moving off the African coast is looking more ominous however, with 90% odds of developing into a storm named Sam, and on a path that gives increased odds of heading towards either the Gulf or East coast.
Shell agreed to sell its assets in the Permian basin to Conoco this week in a deal valued at $9.5 billion. This continues a trend of oil majors based in Europe rapidly shedding traditional assets in a move towards renewables, while US based majors seem to be taking a much more conservative approach to the energy transition.
Another day, another large selloff in Ethanol RINs, which reached a fresh 7 month low Monday, trading below $1.10/RIN for much of the day as the industry continues to wait on blending targets to be released.
Click here to download a PDF of today's TACenergy Market Talk.
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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.
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.