Energy Futures Starting In The Red Today
Energy futures are starting the day in the red, still stuck in the unknown between the Middle East supply concerns, and global demand concerns both of which are playing out on center stage at the UN this week.
While the Saudi attacks no doubt left their mark on energy prices, which are still some 5-6% higher for prompt values than they were prior, the forward curve charts below show that over the next 3 years, the change in prices has been minor. For WTI and Brent, forward prices are still below where they were a month ago suggesting this market is still more concerned with demand growth flattening than it is with a disruption of supply.
While futures may have had a muted reaction to the Saudi Supply threat, spot prices on the West Coast have been spiking once again as a new rash of refinery issues crops up. LA Spot gasoline basis values surged to 60 cents over the NYMEX in Monday’s session, while Bay-Area diffs reached 75 cents over, compared to differentials around a penny along the Gulf Coast.
The IEA is celebrating the formation of a “3% club” at the UN assembly this week. The a group of 15 countries that are committing – with words – to accelerate progress towards energy efficiency, marked by a 3% annual improvement in energy intensity.
Meanwhile, ExxonMobil’s annual Outlook for Energy report suggests that improvements in energy technology are already creating cleaner and more efficient transportation, and predicts that trend will accelerate in the coming decade.
Jerry, Karen and Lorenzo are all churning through the Atlantic, while a 4th system is threatening to develop off the coast of the Yucatan. At this point, only Karen appears to stand a chance of threatening the US coast line, although those odds have diminished since yesterday as the latest models favor a shift to the east into open water, rather than West towards the US.
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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.