Energy Complex Tries To Claw Back Some Value
Gasoline traders seem to be taking the glass half full approach to inventories reaching new all-time highs with a seven cent/gallon rally in the early going Wednesday, as the energy complex tries to claw back some value after two days of heaving selling for most contracts, amid the mind blowing swings in the now expired May WTI contract.
The API was said to show more large builds in inventories across the board last week with crude stocks up 13.2 million barrels, gasoline stocks rose 3.4 million barrels and distillates rose 7.6 million barrels.
The DOE’s weekly report is due out at its normal time this morning. Beyond the headline stats that tell us where the government estimated inventories were last Friday, the key figures to watch are the refinery input and output levels which will give us more insight into where those inventories will be in a month. U.S. refiners have done a remarkable job so far of cutting back total run rates and gasoline production without sacrificing much output in ULSD, but seem to be reaching their limits of both capacity and yield that have pushed physical product prices to 20 year lows.
Chinese refiners are offering a glimmer of hope to beleaguered U.S. plants, as they begin ramping up rates and are estimated to be surpassing total U.S. output temporarily as the country returns to business. If a similar pattern plays out in the U.S., we should see refineries be able to start ramping up production in late May or early June.
Big Decision: The U.S. Oil fund – the giant oil-related ETF that investors often mistake for owning oil, announced it was shifting its portfolio further forward on the curve, and executing a reverse share split, due to the extreme volatility in the front month contracts that threaten to destroy the fund.
No decision: Texas regulators chose not to create limits on oil producers this week. The industry meanwhile continues to rapidly cut production at an unprecedented rate as it tries to catch up to the rapid demand drop around the world.
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.