Bullish Headlines Push Energy Prices Higher, Refinery Upsets Persist

Market TalkWednesday, May 24 2023
Pivotal Week For Price Action

Energy markets finally got something to talk about besides the debt debate Tuesday, with a pair of bullish headlines helping to push prices modestly higher once again. The move is relatively tame so far however, as shaky stock markets seem to be keeping optimism for a real rally at bay for now.

The API reported large declines in oil and gasoline inventories last week of more than 6 million barrels each, while distillates declined by 1.8 million barrels. The market jumped immediately following that report as it suggests that the demand doldrums that have plagued the industry for the past 6 months may finally be in the rear-view mirror. The EIA’s weekly report is due out at its normal time this morning and will be delayed next week due to Memorial Day. 

The Saudi oil minister issued another warning to oil speculators who have been shorting prices this year, once again using the threat of “ouching” which seems somewhat comical considering his country’s reputation regarding human rights. The market took those comments to mean that there’s a chance that the de-facto leader of OPEC & Friends would be pushing for more output cuts, and prices rallied following those statements. 

A week after suffering a deadly fire, the 3rd largest refinery in the country had another operational upset Monday, this time in a hydro-treating unit, according to a filing yesterday with the TCEQ. Gulf coast basis values continue to shrug off these reports, with little movement seen over the past week.

The Group 3 market did see a bit of a buying spree Tuesday after a fire broke out at the CVR refinery in Wynnewood OK, injuring two employees. Group 3 values had already been trading at healthy premiums to the Gulf Coast for most of the past 2 months as inventories dropped well below their seasonal range, and this latest tick higher should encourage more barrels to head north, particularly since the draw to ship barrels west is rapidly diminishing. 

Speaking of which, rack prices across the Southwestern US continue their return to earth as local refineries ramp up after spring maintenance, alleviating the severe product shortages, and sending premiums for prompt barrels plummeting 70 cents/gallon or more in the past 2 weeks.

A Reuters article Tuesday suggested the EPA was backpedaling on plans to introduce eRINs to the RFS program and was officially recommending delaying that move in the final ruling for 2023-2025 that’s due in 3 weeks. The more heavily traded D6 (ethanol) and D4 (bio) RIN values were little changed following the news, while the lightly traded D3 (cellulosic) RINs continued to recover after the initial plan sent their values sharply lower this year.

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Market Talk Update 05.24.2023

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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