Energy Futures Rallied To End The Day
After a soft start to Wednesday’s session, energy futures rallied to end the day, with Brent, WTI and ULSD contracts all reaching new 3 year and 11 month highs. We’re seeing a similarly soft start to today’s trading but the sellers seem cautious as the oil market has the feel of a bullish freight train that no one wants to step out in front of. The EIA weekly report surprised many with a large build in crude oil stocks that initially sent prices lower, only to see buyers step in as it seemed those increases were driven by the volatile nature of the import/export flow for oil in the US.
Oil stocks had their largest weekly increase of the year, rising just under 8 million barrels as export dropped sharply, which accounted for 6.4 million barrels of the increase.
Refinery runs offered a bit of a surprise, with rates rising in 4 out of 5 PADDS, and showing a small net increase of 77mb/day nationwide despite the expectations for a busy fall maintenance season. As the Refinery Run charts below show, we are still on the early side of the seasonal maintenance window, so it’s likely we’ll continue to see rates drop over the next 4 weeks. Midwest (PADD 2) run rates reached their lowest level in nearly 2.5 years, while Gulf Coast (PADD 3) rates continue to impress, running nearly ½ million barrels/day more than they’ve ever done this time of year.
There’s a glut of gasoline inventory in parts of the US that’s just not going away. Total US gasoline stocks held above their 5-year seasonal range this week, with another counter-seasonal build in PADD 1 inventories largely offsetting declines in the other 4 PADDs. The excess along the East Coast may account for the relative underperformance of RBOB vs the rest of the petroleum complex over the past few weeks. The reason for the excess in gasoline inventories is easily explained by refinery output that is holding above the high end of its 5 year range, while demand is stagnating near the 5 year average.
The storm system moving through the Caribbean is still given a 30% chance of development, although forecast models suggest it’s likely it will make it into the central to eastern part of the Gulf of Mexico next week. That’s good news for the refineries along the TX Gulf Coast, but LA refiners will have to watch for a few more days.
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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.