After A Choppy Start To The Week, Refined Products Are Leading A Strong Rally In The Energy Complex Wednesday Morning

After a choppy start to the week, refined products are leading a strong rally in the energy complex Wednesday morning as some bullish outlooks from 2 of the 3 major reporting agencies and more refinery upsets both seem to be spurring a bid.

While diesel prices are leading the charge in the early going, with April ULSD up 7.5 cents, the charts actually look more bullish for RBOB which just half a cent away from reaching a 5 month high, which would set up a run at the $3 mark if it can break through that resistance.

Several more drone attacks on refineries in Russia were reported overnight, with the country’s largest facility said to have a fire in its main crude distillation unit and at least one other facility damaged in the attacks. While getting a real story from any refinery on the impact of a fire is challenging, let alone one in Russia, two things seem apparent from this most recent string of attacks: 1. Russian exports are likely to decline and 2. Refinery managers around the world are now wondering how they’re going to prevent something similar from happening to them.

It’s data deluge week with the OPEC, EIA both released yesterday and the IEA’s monthly report due out tomorrow.

OPEC continues to sound bullish on the global economy, revising its GDP estimates higher for the year, even though its oil demand forecast held steady from last month. The cartel’s oil output increased by more than 200mb/day last month as Libya and Nigeria – both of whom are exempt from the output cut agreement given the state of flux in their countries – had large increases. OPEC’s report also noted the continued strength in shipping rates as the worsening situation around the red sea requires longer routes to get oil and products to where they need to be.

A Reuters article Monday highlighted the drastic divergence in demand estimates from OPEC and the IEA, both of whom are no doubt using their monthly reports to promote their agenda. OPEC of course has incentive to believe that global demand is going to be healthy, and require more of the cartel’s oil to meet those needs, while the IEA has been championing the energy transition for years.

The EIA meanwhile is also sounding quite bullish in its monthly Short Term Energy Outlook, making a large revision higher in its US GDP estimates for 2024. The EIA reduced its global supply growth outlook for 2024 after OPEC & friends extended their output cuts, which they expect will lead to a drawdown of inventories in the 2nd quarter. The agency predicts that the higher oil prices caused by the drawdown will lead to gasoline prices averaging roughly 20 cents more per gallon than they were estimating last month, which is probably more confirmation that the government is overpaying some company to provide their macro-economic data than anything else.

One interesting note from the EIA’s report is the impact that improving fuel efficiency is having on total gasoline consumption. The report shows strong growth in vehicle miles which are expected to hit all-time highs in 2024 and 2025, but gasoline demand is flat due to the better fuel economy.

The report also highlights the warm winter’s impact on natural gas prices which hit a record low in February. In total, the US had 8% fewer heating degree days during this winter compared to the 10 year average, putting plenty of pressure on domestic producers until more export capacity comes online in the next year.

The API estimated oil inventories declined by 5.5 million barrels last week, while gasoline stocks dropped by 3.8 million barrels and diesel fell by 1.2 million barrels. The DOE’s weekly report is due out at its normal time, and the refinery run rates will be key to know how well BP and others are doing in their efforts to restart their plants after extended downtime.