Disappearing Rallies Are Becoming A Theme In The Energy Arena
Disappearing rallies are becoming a theme in the energy arena this week as Wednesday’s action saw 10 cent overnight gains erased throughout the day, and already Thursday we’ve seen nickel gains overnight turn into 3 cent losses early going. The smack downs of any attempted bounce are adding to the bearish sentiment on the charts, and leaving the complex at risk of another sharp selloff in the back half of the week.
There is no doubt that fear is taking hold of both equity and energy markets, with volatility indices soaring to 1 year highs, and each mention of a new Omicron case seeming to have an immediately negative impact on prices, particularly now that the FED seems to be changing its stance, and viewing the virus as an inflation risk, not a reason to create more inflation themselves as they’ve done the past 2 years.
The best hope for a recovery rally that’s able to last more than a few hours may come from the OPEC & Friends meeting this morning, if the cartel agrees to pause or reverse its output increases due to the Omicron outbreak and its expected impact on global fuel demand. Then again, the guesses that the cartel may change course today have been increasing all week and yet prices continue to fall.
The DOE’s weekly report was largely shrugged off and overshadowed by the Omicron in the US story Wednesday, but there are some bearish fundamentals that won’t help encourage buyers to step in and buy the dip. US Crude oil production reached an 18 month high, even though there’s still a quarter million gallons per day of production offline from Hurricane Ida, and numerous bottlenecks in the supply chain slowing the rate of drilling. As those two issues are worked through in 2022, it’s likely we will see US output jump north of 12 million barrels/day at a time when the world doesn’t seem to need more supply.
Speaking of which, the report also showed a large pullback in US fuel demand, particularly in gasoline, and with the holiday hangover not yet in the numbers, we could see another big drop in consumption in the weeks to come.
While the meltdown in futures is getting most of the attention this week, prices in the Pacific Northwest have been resisting the trend with basis values jumping sharply higher as at least 3 refineries in the region are still having to reduce run rates due to a lack of crude oil supply caused by last month’s flooding. The good news for suppliers in the region is that Transmountain pipeline is still on track to restart next week which should bring relief to those plants in short order.
Latest Posts
Energy Prices Up Over 2% Across The Board This Morning
Prices Are Mixed This Morning As The Potential Halt In U.S. Interest Rate Hikes
Week 22 - US DOE Inventory Recap
The Slide Continues This Morning With Fuel Futures Down Another 2% And Oil Down 3%
Social Media
News & Views
View All
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.