Gasoline And Diesel Prices Higher Than Before Lockdown
Gasoline and diesel prices are now higher than they were before the world went into lockdown last year as the bull market for energy futures marches on. The bulls seem to have clear control as prices tick higher for a fourth straight day, but need to clear the February 2020 high trades (just two cents above the highs set last night) if the momentum is going to continue.
Near term fundamentals continue to look weak, but it seems that the market is shrugging off those figures, and focusing instead on the potential for increased demand down the road as vaccinations start to spread more than COVID, and a new stimulus package is expected to keep freshly printed dollars moving into the economy.
Crude inventories did decline according to the DOE’s weekly reports, but by much less than the API estimate for the week, as imports ticked back up, and refinery runs slowed in 4 of the 5 PADDs. Demand estimates were down across the board, which drove large builds in gasoline and jet fuel stocks, while distillates held steady on the week thanks in large part to a tick up in export volumes.
Ethanol stocks continue to build as producers seem to be taking advantage of the run up in flat prices, and in RIN values, over the past two months. RIN Values did drop for a third straight day Wednesday, but that seemed to be ignored by the RBOB futures market once again.
In refinery news, a private equity group in Dallas is bidding to buy the shuttered Come-By-Chance refinery in Newfoundland, with plants to convert it to renewable diesel production since that’s what all the cool refineries are doing these days. There were reports that three different FCC upsets happened over the past few days, one on the East Coast and two on the Gulf Coast, which may help explain part of the relative strength in RBOB prices and time spreads this week, but all of those issues appear to be getting fixed and should not have long term impacts on supply.
The EIA’s annual energy outlook was released yesterday, which projected estimates that U.S. oil production and consumption will take years to recover from the pandemic. The report also highlights the uneven impacts of the COVID lockdowns, and how the return to normalcy may look very different among sectors of the economy.
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View AllEnergy 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.