It’s A Mixed Bag For Energy Markets To Start Thursday’s Session

Market TalkThursday, May 12 2022
Pivotal Week For Price Action

It’s a mixed bag for energy markets to start Thursday’s session, with Gasoline prices rising after an overnight drop, WTI coming under pressure after a Wednesday rally, while Diesel drama is dominating the price action once again.  

June ULSD futures have already seen a 22 cent swing this morning as any headline from Europe has the potential to move prices a dime or more in just a few minutes.

Some of the 30 cent pullback from yesterday’s highs are credited to Germany’s utility Uniper announcing it had found a loophole to continue purchasing Russian natural gas without violating sanctions, which may provide substantial relief for the next supply crunch. Then again, Russia is cutting off some natural gas to other parts of Germany to retaliate against sanctions, which may explain why prices have bounced 10 cents from their overnight lows. 

The DOE’s weekly report showed East Coast (PADD 1) diesel inventories reached their lowest level since they started keeping records in 1990 last month, and have dropped another 13% in the past 2 weeks.  The East Coast is suffering from 2 undeniable fundamental realities these days, first, it has been a net importer of refined products for decades, and has only increased its reliance on other producing regions in recent years. Second, it’s also the closest district to Europe, and if you put diesel on a vessel from a US Port, the Jones Act and proximity makes it easier in some instances to cross the pond than send those barrels to an East Coast port. The shortage is most notable in PADD 1B which included the central Atlantic states, and the NY Harbor delivery hub. That reality helps explain both the record-smashing price spreads we’ve seen over the past month, and the terminal outages we’re witnessing today.  

Just as we saw with the insane price spike for Jet Fuel in NY last month, eventually the price spreads will draw in reinforcements and bring prices back to reality, but in the meantime, if you hold of diesel anywhere near New York today, it’s worth $1.25/gallon or more than just about anywhere else in the US.

Gasoline stocks are nowhere near as tight as distillates on a historical level, but they too are facing logistical challenges as the world struggles to deal with the supply chain going from bad to worse over the past 3 months just in time to reach our peak demand season.

OPEC’s monthly report revised its outlook for global economic growth and oil demand lower for the balance of the year citing the “geopolitical events” in Eastern Europe (AKA a war) and COVID restrictions for the slowdown.

Click here to download a PDF of today's TACenergy Market Talk.

Market Talk Update 5.12.22

News & Views

View All
Market Talk Updates - Social Header
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