Energy Markets Are Facing A Wave Of Selling To Start May After A Wild Finish To April Trading
Energy markets are facing a wave of selling to start May after a wild finish to April trading. Equity markets around the world have been facing heavy selling pressure as expectations for a global economic slowdown increase, which seems to be giving a risk-off feel to all sorts of assets to start the new month.
ULSD futures stole the show again last week, with the expiring May contract breaking $5 for the first time ever on Thursday, then rallying all the way to $5.85 on Friday before crumbling to $4.40 before the close. The June contract is hovering around the $4 mark, down around 4 cents on the day, and while the 32 cents of backwardation to July would have set records in year’s past, it seems quaint compared to what we just went through.
Money managers continue to make only minimal changes in their NYMEX energy holdings and open interest for refined products remains near multi year lows as some contracts, HO in particular, are simply too hot to handle for many these days.
Baker Hughes reported a net increase of 3 oil rigs drilling in the US last week with New Mexico and Louisiana both adding a pair, while Texas dropped 1 on the week. While the rig count continues its slow and steady increase, at this pace it will take until the end of the year to reach pre-pandemic drilling levels.
California’s LCFS credits tumbled to a multi-year low on Friday after the state’s Air Resource Board reported the largest ever quarterly surplus in credits. Large increases in Renewable Diesel and electricity production were the biggest factors during Q4 of 2021, while biodiesel and bio-methane both saw decreases. The drop in LCFS credit values from $150 to start the year to $107 now saves a consumer of gasoline and diesel about a nickel/gallon, but costs producers of a renewable product with a CI of 30 about 35 cents/gallon, which may be enough to encourage incremental barrels to go to Europe instead of California.
Click here to download a PDF of today's TACenergy Market Talk.
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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.