Market Sentiment Swings With Debt Negotiations
It’s a choppy start to the new week, with energy prices already moving back and forth from gains to losses a few times in the early going with the debt drama in Washington continuing to appear to be the key driver of price action.
Friday saw a quick and sudden price drop following news that congressional negotiators had walked out of discussions over the debt ceiling, just a couple of days after optimism over those negotiations had sent prices sharply higher. The President and House Speaker are meeting again today, which could create another big move in either direction depending on the outcome, and with a June 1 “hard deadline” fast approaching, expect that story to be the main story until a resolution is found.
Money managers continued to decrease their net length in oil contracts last week, with another round of bets on lower WTI priced being placed by the large speculative trading category (AKA hedge funds) while Brent saw a decline of more than 11,000 long positions. Funds are acting more bullish on refined products, with healthy short covering for ULSD, Gasoil and RBOB contracts last week, after it appears that prices may have found a temporary floor.
The open interest in ULSD contracts jumped up to its highest level since the start of the Ukraine war, as the return to more normal levels of volatility has allowed more players back on the field. Net length for ULSD held by money managers also moved back to a net-positive position after 2 weeks of being net short.
Baker Hughes reported a decline of 11 oil rigs drilling in the US last week, dropping the total rig count to the lowest level in a year. Texas led the decline last week with 9 of the 11 rigs shut down. Natural gas rigs held steady after last week’s huge decline but remain at their lowest levels in a year as well. A Bloomberg article last week suggests that a shortage of wastewater disposal capacity may be contributing to the slowdown in drilling activity around the Permian basin.
The 650mb/day Dangote refinery in Nigeria is being “officially” commissioned today, roughly 7 years after it was originally scheduled to come online. The facility still isn’t “actually” making refined products yet, and the Grand opening is seen by some as political theater on behalf of the outgoing President, while others see this new facility as a game changer for the Atlantic basin once it does start producing.
Today’s interesting read: An in depth look at the opportunities and challenges for a waste-to-fuel refiner.
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.