Energy Futures Are Seeing Another Day Of Modest Gains To Start Thursday’s Session
Energy futures are seeing another day of modest gains to start Tuesday’s session, with ULSD once again leading the way in what would be a 5th straight increase after reaching a 13-month low last week. Some less bearish figures from yesterday’s DOE report, and some bullish economic data from China are both getting credit for the buying to start March, although the moves are quite modest, and are not looking trend setting at this point.
The DOE still can’t figure out where more than 2 million barrels/day of crude oil inventories are coming from, but unlike the prior two weeks, that didn’t translate into a huge inventory build. A surge in oil exports to the highest levels on record were the main contributor to stocks holding steady even though the government’s accountants found another 15 million barrels of inventory. Exports of US oil spiked to 5.6 million barrels/day last week (that’s more than 1.6 billion gallons shipped overseas in a single week) smashing the previous record of 5.1 million barrels/day set last fall. Keep in mind that 10 years ago, the US was still effectively exporting no oil at all.
Reports suggest Exxon has started up its new 250mb/day crude unit at the Beaumont TX refinery, which will mark the largest increase in US refining capacity in over a decade. That increased capacity is not yet showing up in the DOE’s weekly capacity figures and may not be updated until the unit is fully online later in the month.
Diesel demand did tick higher last week but remains at the bottom end of its 5-year seasonal range, and half a million barrels/day below last year. In other words, there are 20 million gallons less diesel being used in the US every day than there was this time last year. Earlier this week, the DOE’s monthly figures showed that diesel consumption in the US slumped to a decade low in December, and so far in the new year things are not looking much better.
Gasoline demand meanwhile jumped above its 5-year seasonal range, and is outpacing year-ago levels. That relative strength may be in part due to average retail prices holding 25 cents below year-ago levels, whereas retail diesel is still 25 cents higher year on year despite wholesale values being lower.
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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.