Energy Supply Crisis In Europe Spreads
Diesel prices are pushing to fresh 3 year highs, and Brent crude is making a run at the $80 mark as an energy supply shortage is spreading across parts of the world. RBOB and WTI prices are lagging behind, but still pushing solid gains to start the week.
Today’s price action seems to reflect that the Energy supply crisis in Europe is spreading, and forcing a severe dose of reality onto those with net-zero ambitions. As we’ve witnessed numerous times following supply disruptions in the US (whether that’s fuel, or toilet paper) panic buying is making the situation even worse, and causing many stations to run dry across the UK. It’s not just Europe that’s having problems, power shortages across China are promising to increase challenges for other supply chains that have been hampering global trade for the past year.
Feast or famine: As parts of the world are struggling with a lack of natural gas, producing nations are still struggling with how to limit the excess gas that has to be burned off in flares. See this financial times video on the work being done to improve that process.
Hurricane Sam blew up into a Category 4 storm with sustained winds near 150 miles per hour over the weekend, but its track has shifted favorably and it appears that it will spare most Caribbean islands and the US East Coast. There is still a chance the storm could hit the Canadian coast as it travels north, but in terms of fuel supply disruptions this storm should be a non-event.
The National Hurricane Center is tracking 3 other storm systems, 2 of which are given 80% odds of developing, and are in a position that gives them a chance at heading for either the Gulf or East coasts next week.
Not coincidentally, as diesel prices have reached 3 year highs, the bets placed on higher diesel prices by large speculators has also reached their highest levels since 2018. The money manager trade category is less enthusiastic about RBOB and WTI contracts however, reducing their net length in both last week.
Baker Hughes reported 10 more oil rigs were put to work last week, the 2nd straight week of double digit increases. For months we’ve read stories about how US Producers were being more conservative as prices rose, and now we’ll see if that’s really true as an industry built by “WildCatters” is once again enjoying a very profitable market.
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.