Energy Futures Are Seeing A Strong Rally To Start Friday’s Trading With Big Rallies In Risk Assets Around The Globe
Energy futures are seeing a strong rally to start Friday’s trading with big rallies in risk assets around the globe and some technical buying after the heavy selling earlier in the week both seeming to contribute to the big bounce. Chinese demand guesses continue to be a talking point as well, although it’s becoming even less clear whether or not the world’s largest oil importer is actually relaxing or not.
Hope springs eternal: Just a week after the FED chair said it was “very premature” to talk about when central bank would pivot from its tightening monetary policy, US stocks had their best daily rally in 2.5 years betting the FED would pivot because inflation was only .4% for the month of October, and 7.7% for the trailing 12 months. That euphoria continued overnight in international markets and seems to have encouraged some energy traders to jump on the “risk on” bandwagon this morning, even though the correlation.
While the optimists are clearly in control at the moment, don’t be surprised if more demand fears creep back in soon after reports that Chinese refiners have taken an unusual step of asking Saudi Arabia to reduce their oil volumes in December as consumption has slowed. Those reports seem to rain on the parade of the COVID relaxation rumor crowd, who were acting an awful lot like the pivot prophets are now until reality set in.
Big drops in diesel outright prices, time and crack spreads had pushed several contracts to key chart support levels that could have sparked another wave of selling, but so far technical support layers have held up and the bulls have passed their first big test. We’ll have to see if that proves true for the record-setting basis values in NYH that dropped almost 20 cents Thursday after reaching a record premium of $1.25/gallon earlier in the week.
Gulf Coast diesel is now trading more than 27 cents below December ULSD futures, and is still trading nearly $1.30 below prompt values in New York, which has pushed values for shipping diesel along colonial to a record high of 15 cents/gallon. That rapid increase suggests PADD 3 refiners may have temporarily run out of better alternatives than braving the backwardation along the East Coast to get rid of their excess distillates.
Terminals across Florida are reopening as power has been restored following Hurricane Nicole’s landfall. There are no reports yet of major damage to any port or tank infrastructure.
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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.