Energy Futures Moving Higher For 2nd Day
Energy futures are moving higher for a 2nd day, and most contracts in the petroleum complex have now wiped out Monday’s heavy losses as the uncertainty over Venezuela and optimism in US stocks both seem to be helping encourage buyers.
While most of the oil market chatter continues to revolve around Venezuela, the correlation between energy and equity markets continues to be strong, so it seems the early boost in stocks on the backs of some positive earnings reports is aiding in the bounce in petroleum futures.
Unlike when sanctions were placed on Iran last year, Saudi Arabia is not rushing in to offset any potential lost production from Venezuela, at least according to some reports. Whether or not that holds true, and how much extra oil may be needed, is just a guess at this point, and anyone who says differently is probably trying to sell you something. Assuming there will be some drop off in heavy oil supplies for Gulf Coast refiners, that’s just more bad news as most are already struggling with an excess of gasoline while trying to maximize their diesel output.
Speaking of which, diesel prices led the move higher Tuesday, ending the day up around 6 cents after several utilities from the Great Lakes region to the East Coast notified customers of natural gas curtailments due to the winter storm, sending buyers scrambling for heating oil. The rush may prove short-lived however as above average temperatures are forecast for the weekend, which may explain why natural gas futures continue to slide even while spot supplies are tight in several markets.
The API was said to report another week of inventory builds across the board, with crude and gasoline stocks up more than 2 million barrels, while distillates were up just over 200,000 barrels on the week. The DOE’s weekly status report is due out at its normal time this morning, and based on the strength in basis values across many spot markets since bottoming out early in January, (not to mention the weak margin environment) it seems likely we’ll see refinery run rates cut back further in this report.
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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.
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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.