Busy Week For Earnings Releases
It looks like we might be in for a bit of sideways trading after Friday’s attempt as selling off fizzled out, and then Sunday night rally attempt did the same. It will be a busy week for earnings releases that should keep equity markets on their toes, and there will no doubt be plenty of news from Washington that could influence prices, but the charts suggest we may be consolidating as short term indicators move to neutral territory.
A healthy bounce in gasoline demand estimates from the DOE helped RBOB futures claw back from heavy early losses to finish Friday’s session slightly higher. While that bounce helped keep the bullish trendlines intact for now, we’ll need to see futures push through their January highs in order to regain the upward momentum and avoid a larger sell-off. It’s not unusual to see gasoline prices rally 50% from the winter to spring, but since they’ve run up more than that during the winter, we may be due for a spring pullback instead of a rally unless demand can climb back closer to what we’ve seen in non-COVID years.
Money managers seemed cautious on oil and gasoline contracts, with small increases in net length in WTI and RBOB added last week while Brent saw small declines. The large speculators seem to be getting more bullish on distillates after months of neutral positioning as both ULSD and Gasoil contracts saw substantial increases in net length (bets on higher prices) last week. Those buyers are facing an immediate test as ULSD futures are trading right near the bullish trendline that’s held prices since early November, and if that line breaks there’s a good chance we see a 10-12 cent drop in the next couple of weeks.
Baker Hughes reported a net increase of two active oil rigs in the U.S. last week, marking a 9th straight week of gains. Unlike most weeks however, the Permian basin (which accounts for nearly 2/3 of all active oil rigs in the country) did not drive the increase, and in fact was down by one oil rig on the week. As last week’s DOE report showed, despite the pick up in drilling activity over recent months, actual U.S. oil output has remained flat during that stretch, holding steady around 11 million barrels/day, compared to 13 million barrels/day this time last year.
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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.