Energy Prices Bounce After Worst Daily Selloff In A Month
Energy prices are bouncing after their worst daily selloff in a month Monday, keeping the door open for an extended price rally.
New travel restrictions in a handful of countries due to COVID case spikes took some of the blame for Monday’s sell-off, although from a technical perspective the complex was due for a pullback after the bull rally has pushed prices to multi-year highs. Today’s bounce keeps the trend lines intact, so it’s too soon to say that the rally is over, and those calling for oil prices to reach $80-$100 this year will see the past two sessions as nothing more than a corrective dip.
Tropical Storm Danny made landfall in South Carolina Monday, and has weakened quickly as it moves inland. Two other storm systems are being monitored, but both look like long shots to get into the Gulf of Mexico and become supply threats.
After last week’s Supreme Court ruling that favored small refinery exemptions to the RFS, the EPA is now on the clock to finalize both the RVO requirements for the year (which are already 6 months past due) and to rule on 50 small refinery waiver requests. Not surprisingly, industry groups are not wasting any time lobbying the EPA to see things their way. RIN values did trade higher Monday from where they left off Friday, making for an unusual divergence between RBOB futures which sold off heavily despite the bounce in RINs. Given the close relationship between the two contracts, that could help explain why RBOB is leading the recovery rally this morning.
It’s worth noting that money managers appear to have made a wrong way bet on crack spreads ahead of that Supreme Court ruling, increasing net length in RBOB and ULSD, while reducing length in WTI and Brent. It’s possible that yesterday’s reaction was an unwinding of that trade when it became clear that the latest ruling would not be bullish on crack spreads, but it’s impossible to say given the limited scope of position data available. It’s just as possible that the bullish stance on crack spreads is a play on the St. Croix refinery closing indefinitely after numerous operational mishaps over the past year.
While the big money funds appear mixed on the outlook for oil and refined products, carbon credits remain a hot bandwagon trade with California Carbon Allowance (CCA) positions seeing an increase in net length (bets on higher prices) by money managers for a 6th straight week, even as prices trade at record highs. Given that climate change has become a dominant headline, it’s not surprising to see an influx in hot money into the few contracts that are easily tradeable, and this phenomenon could continue creating volatile swings, similar to what we’ve seen with RINs over the past decade.
Today’s interesting read: How a Salt Lake refinery is using salt to make safer, cleaner, alkylate.
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.