Energy Complex Teeters On Edge Of Technical Breakdown
Rising inventories are checking demand optimism this week as the energy complex teeters on the edge of a technical breakdown that could knock another 10 to 20 cents off of refined products, despite a strong rally in U.S. equity markets.
The API was reported to show a large build in U.S. crude oil inventories of 8.7 million barrels last week, which sent the complex on an immediate selling spree after the report was released. However, Cushing, OK saw another large draw down of 3.3 million barrels, which has helped WTI prices recover most of their overnight losses. Gasoline inventories were said to increase by 1.1 million, while distillates continue their recent trend as the weakest link in the energy chain, as inventories had another large build of 6.9 million barrels last week.
The relative weakness for diesel is an unusual phenomenon that hasn’t been experienced in more than a decade. In fact, diesel started the year in the strongest position fundamentally, with many concerned that IMO 2020 marine specs would create a run on low-sulfur grades that refiners wouldn’t be able to keep up with. Two months ago, diesel was once again looking strong in the early stages of stay-at-home orders, as a surge in distribution demand kept distillate demand high while gasoline consumption collapsed. That pendulum has swung to another extreme. Distillate inventories are reaching extreme levels as demand stagnates and the export market isn’t strong enough to balance the equation for U.S. producers.
The DOE’s weekly status report is due out at its holiday-delayed time of 10 a.m. Central time, with the “unaccounted for” crude oil figure perhaps the most interesting number to watch.
PADD 2 diesel stocks are also worth watching in today’s report, as evidence mounts that inventories in the Midwest may be swelling to record levels as the typical post-planting demand slowdown hit just in time for April Arbitrage barrels to arrive from the Gulf Coast. Group 3 ULSD basis values have collapsed to record lows in recent days as inventories along the local pipeline systems reach new all-time highs, and collapsing basis values in Chicago-area pipelines suggest those inventories are rapidly rising as well.
D6 RIN values have reached multi-year highs this week, as refineries start to ramp up production – increasing their RFS obligation – and concerns are mounting that next year could create another structural shortage in RIN availability as U.S. gasoline demand won’t recover enough to clear the mandated bio-fuel blending requirements.
The EIA marked another milestone in the changing landscape of U.S. energy consumption, noting that renewable fuel usage surpassed coal for the first time in 130 years, when firewood was the country’s main source of heating fuel. It’s interesting to note that according to this report, the EIA can apparently approximate fuel consumption from 1776 but they still don’t know how much oil is being produced in 2020.
Click here to download a PDF of today's TACenergy Market Talk.
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.