Beware The Ides Of March - Biggest Daily Drop Of Year For Energy Complex Yesterday
Beware the ides of March. Wednesday saw the biggest daily drop of the year for the energy complex, which joined in a major selloff in risk assets around the world as fears over the latest banking crisis spread.
Futures did not waste any time moving towards their technical targets to the downside when chart support failed to do much at all to stand in the way of the selling wave yesterday morning. WTI dropped briefly below $66, its lowest since December of 2021, while ULSD dropped to its lowest level since early January of 2022, and RBOB closing the gap in its charts left behind by the RVP roll, which now leaves the complex looking like it may consolidate for a while.
Diesel prices continue to look the most vulnerable, with a move towards $2 possible if prices can’t hold above $2.50 to end the week. RBOB meanwhile doesn’t look nearly so bad despite the big drop yesterday, and now that the gap is closed on the continuous chart, there’s still an argument to be made that we could get a traditional spring rally over the next couple of months.
While the 10+ cent drops in refined products and 20-cent trading ranges are certainly noteworthy, they pale in comparison to what we saw in March of last year, when trading ranges were routinely north of 30 cents/gallon. March 15, 2022, for example, saw gasoline prices drop 17 cents with a 28-cent range, while ULSD dropped 25 cents with a 33-cent range, and that day was actually quite tame compared to the previous week.
The DOE had another adjustment of more than 15 million barrels (aka 2.2 million barrels/day) on crude oil inventories last week, which helped inventories build despite large increases in exports and refinery runs, while production remains stagnant.
Total petroleum demand remains soft, well below last year and the 5-year average as gasoline and diesel consumption are both holding at the bottom end of their 5-year seasonal range.
Exxon announced that its 250mb/day expansion at its Beaumont refinery was officially online Wednesday, which accounted for the 249mb/day increase in PADD 3 refinery runs last week. The DOE has not yet counted those new units in its capacity figures, which will mark the largest increase in US output in over a decade, and could be the last major refinery expansion ever in the US but will likely do so next week following the official announcement.
PADD 5 also saw a substantial increase in refinery runs last week of 124mb/day, or roughly 6% of capacity, as plants returned to service after a rash of issues in the past month. That increase in production was foreshadowed by large declines in gasoline basis values over the past couple of weeks.
The US Exported more than 6.2 million barrels/day of refined products last week, but gasoline and diesel only accounted for 2 million bpd of that total as the “other” liquids like propane, propylene, and other oils continue to see growth in both international demand and US production.
The IEA’s monthly oil report still suggests that global demand will accelerate sharply in 2023, bringing total consumption to a new record high of 102 Million barrels/day by the end of the year, despite the sluggish start. Rebounding air traffic and the release of pent-up Chinese demand are said to “dominate” the recovery. The report also forecasts refinery runs will stay strong this year, despite the recent collapse in diesel margins, as cracks are still strong by historical standards.
Couche-tard announced a $3.3 billion purchase of 2,200 stores from Total this morning, nearly doubling the company’s footprint in Europe.
Time for an omelet: The US PPI index decreased slightly in February, which brought a sigh of relief for those looking for any sign that inflation is going away. The news was less encouraging if you read further and saw that “Over 80 percent of the February decline in the index for final demand goods can be attributed to a 36.1-percent drop in prices for chicken eggs.”
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