Divergence Seems To Be The Theme Of The Week For Energy Prices
Divergence seems to be the theme of the week as energy prices are having a hard time finding direction as October trading winds down, and we’re seeing some markets struggling with excess supply, while others deal with shortages.
We’re seeing this play out in futures where yesterday HO and WTI contracts staged a strong recovery rally, and managed small gains on the day after free falling in the morning, only to fall back into the red today. RBOB was the only contract unable to recover into positive territory Thursday, but then rallied 3 cents overnight, only to give up those gains in the past hour. The low trades set in Thursday’s session offer a good short term support level that the bulls need to hold if they’re going to have a chance to regain the upward momentum lost early in the week.
We’re also seeing divergence in basis values as West Coast markets have seen strong rallies this week after multiple weather-related refinery hiccups last weekend, while Midwestern values are dropping to multi-year lows. Ordinarily, this type of price spread between regions would mean fleets of tanker trucks long hauling fuel to take advantage of (and eventually help close) the arbitrage window, but given the driver shortages, those options are limited and may keep these spreads wider for longer. On the other hand, Chicago basis values may find some indirect support after a fire was reported at the Cenovus (FKA Husky) refinery in Lima OH that injured 4 workers.
While gasoline prices have dropped more than 10 cents after reaching a 7 year high to start the week, ethanol prices continue to set new records north of $3/gallon as logistical bottlenecks continue to plague suppliers. Even though ethanol prices have had a strong week, RINs have come under heavy selling pressure once again as the industry continues to wait impatiently for the long-overdue ruling on RFS volumes.
It’s the last trading for November product futures, and when the December RBOB contracts takes the prompt position Monday, it will start out some 7 cents below where October goes off the board. We’ve already seen most cash markets adjust to this steep backwardation with big jumps in basis values when transitioning to the December futures reference, but this phenomenon will still cause confusion next week for those watching the prompt contract only and then wondering why their rack price didn’t drop.
Lots of earnings reports to sift through this week, and no surprise that with prices near 7 year highs, most producers are seeing their best earnings in several years. One surprise announcement alongside an earnings release was that World Fuels is buying Flyers Energy group for $773 million.
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.