First Trading Session Indicates Another Volatile Year
If the first trading session is an indication of things to come, it’s going to be another volatile year for energy markets. Oil and diesel prices surged 4% or more to reach 10 month highs in overnight trading, with WTI coming just a few ticks away from the $50 mark, only to see those gains completely erased before a second rally started around 7:30 central. Headline writers can’t quite keep pace with the big early swings that may be caused by expectations for the OPEC meeting taking place today, the latest updates on the global vaccine race, or simply due to the positioning of capital as the new year begins.
ULSD futures were up a nickel around 3 a.m., and RBOB futures were up more than 4 cents, but both have since traded all the way back into negative territory, with the most heavy selling starting around 6 a.m., only to bounce back into positive territory again. This early action could be significant technically, as the complex is on the verge of a breakout to the upside on the charts, but if the rallies continue to be followed by heavy selling, we could be stuck in an extended period of sideways that tends to be whiplash inducing.
U.S. equity markets are starting the year on a more bullish note, with S&P 500 futures trading at record highs, following a strong start to trading in Asian and European markets, and the U.S. dollar is falling once again, reaching its lowest level since April 2018.
The CFTC’s commitments of traders report was delayed again due to holidays and should be out later this afternoon. The ICE’s version of the report showed minimal change in the managed money positions in Brent, but a large increase in bets on higher prices in Gasoil, suggesting a renewed interest in diesel prices from the big speculators.
The EIA is starting off the year highlighting its U.S. Energy Atlas, and interactive mapping program that shows details on energy infrastructure of all types nationwide. The interactive nature of that program seems particularly useful these days as the past year saw more refinery closures announced than the country had experienced in nearly 40 years. So far we’ve made it three days into 2021 without any new announcements of plants being shuttered, but we’re also in the worst few weeks for demand of the entire year historically so there still could be more to come.
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.