Energy Prices Were Moving Modestly Lower Overnight But Bounced Immediately Along With Equity Markets

Market TalkWednesday, Apr 12 2023
Pivotal Week For Price Action

Energy prices were moving modestly lower overnight but bounced immediately along with equity markets following the March CPI estimate. That report showed that inflation continues in the US, but at a slower pace and below levels many predicted, which is causing algorithms to front run the crowd that will say the FED will have to stop raising rates based on this report.  Energy prices were a key contributor to the slow-down in inflation with gasoline and fuel oil prices both down 4% or more over the past year, while all items besides food and energy were still up 5.6% year on year.

The EIA held its forecast for global demand steady in the April Short Term Energy Outlook but increased its price forecasts slightly due to the OPEC production cuts announced in early April. The report also highlighted how OPEC’s cuts means that more market share for supply is being taken by the US and other countries. Despite the recent pullback in drilling activity, the EIA still predicts that the US will set output records over the next 2 years.

The API report Tuesday afternoon showed that gasoline and crude oil stocks had small builds of less than a million barrels last week, while distillates saw a healthy decline of nearly 2 million barrels. That report seemed to have gasoline buyers on their heels, with prices down a nickel a gallon overnight after touching fresh 6-month highs at $2.8682 during Tuesday’s session. The EIA’s weekly report is due out at its normal time this morning.

Extremely tight supplies continue across the southwestern US this week with $1/gallon+ premiums vs spot markets becoming a normal occurrence for prompt gasoline and diesel stretching from West Texas to Arizona.   

The EPA this morning proposed new “Phase 3” emissions standards for light and heavy duty vehicles, with more stringent standards for CO2 emissions. The proposed standards “Do not mandate the use of a specific technology” but the EPA makes it clear that it expects electric vehicles to continue taking more market share to meet these tighter standards. If the proposals become law, they would begin phasing in with model year 2027 vehicles and engines and it will take about that long to read through their documents.

Kevin O’Leary is making an attempt to get more people to watch Shark Tank by announcing his plan to try and find a state in the US that will allow him to build a major refinery, which would be the first new large refinery in over 50 years if this plan goes anywhere. There are no confirmed reports yet that Mark Cuban has offered to trade Kyrie Irving to his co-star to run that facility.

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Market Talk Update 04.12.2023

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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.

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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