Energy Prices Continue To Fall In May, Money Managers Bet On Lower Prices

Market TalkMonday, May 1 2023
Pivotal Week For Price Action

Mayday: Energy prices are off to a rough start to the month with refined products losing another 4 cents/gallon in the early going and setting a new 16 month low for ULSD in the process. While the bearish sentiment continues for refined products, equity markets are so far calmly acknowledging the 2nd largest bank failure in US history, which was done in relatively orderly fashion over the weekend. 

Betting on a drop: Many money managers are cheering today’s selling after they added heavily to bets on lower oil and refined product prices last week, pushing the net length held by large speculators in diesel contracts to multi-year lows.

ICE Low Sulphur Gasoil contracts (the European equivalent to ULSD) dropped to a net short position held by large speculators for the first time since 2020. ULSD meanwhile saw net length held by speculators drop to its lowest since January 2021. The main difference between the European and US diesel contracts is that Gasoil has seen a steady increase in Swap Dealer length over the past year, while ULSD has seen that category – which is a proxy for hedgers that access the market through a bank – continue to decline. For those that view the Money Manager positions as a contrary market indicator, the big bearish bets may be seen as a reason that the market may be nearing a floor.

Baker Hughes reported that the US Oil rig count held steady last week, while natural gas rigs increased by 2. The Permian Basin and Gulf of Mexico both saw a tick higher in their rig counts, offsets by declines in the Bakken and Eagle Ford. A Reuters article over the weekend suggests that the recent increase in Gulf of Mexico activity will cause output to reach a new record high in 2025, but some companies are getting more interested in the carbon capture potential for the area than its oil.

California reported another increase in LCFS credit generation in Q4 2022, with the surge in new renewable diesel production, along with new renewable electricity options offsetting declines in ethanol and biodiesel. More Soy and Corn oil were used to produce that renewable diesel than ever before, which is further complicating an already tricky food security dilemma in China

The increase in renewable electricity meanwhile may eventually add more pressure to RIN values assuming the EPA’s proposal to allow eRIN generation starting next year.

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Market Talk Update 05.01.2023

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Market TalkFriday, Jun 2 2023

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

Pivotal Week For Price Action
Market TalkThursday, Jun 1 2023

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.

Pivotal Week For Price Action
Market TalkThursday, Jun 1 2023

Week 22 - US DOE Inventory Recap