Choppy Energy Futures Amid Technical Crossroads

The choppy action continues in energy markets as RBOB and WTI reached fresh multi-month highs Wednesday, only to be met with modest selling again overnight.  

WTI has rallied right into its 200-day moving average before pulling back. If that resistance breaks, there’s not much on the charts to prevent a run at $90, but if it holds, there’s a good chance we see a move to fill the gap left by the surprise OPEC announcement two weeks ago, which would target $76.

For RBOB, the charts continue to suggest we’re on a path towards $3, even though we’re moving lower this morning after prices got close to $2.90 Wednesday. Short term indicators have moved into overbought territory for RBOB, so a pullback is not surprising and may set the stage for the next phase of the spring rally. Total US Gasoline inventories are holding well below their seasonal range, with PADDs 1 and 2 accounting for all of the shortage, while PADDs 3-5 are all holding near average levels for this time of year. The EIA estimated a decline in gasoline demand last week, which snapped a 4 week stretch of gains. The total gasoline demand estimate remains above last year’s levels and the 5-year average over the past month as lower prices seem to be helping consumers.

ULSD remains stuck in its relatively narrow range between $2.60 and $2.80 that has held values for nearly a month. Compare that to last April 13 when prices moved 33 cents in just 1 day. Diesel stocks remain at the bottom end of their seasonal range in all regions except the West Coast which is seeing inventories swell thanks both to the influx of new renewable diesel supply in the region and the brutal weather that’s curtailed demand for most of the year so far. LA did see a strong recovery in basis values yesterday, following reports that waterborne barrels are being sent away from the state due to the weak values. 

Note the large drop in the EIA’s crude oil adjustment factor in the charts below, which coincided with a large drop in the total petroleum demand estimate. While both gasoline and diesel did see a drop in their estimated consumption, the remainder is what the agency has now admitted is just a guess due to the lack of clarity on condensates and other liquids in the crude oil stream.

Refinery runs held relatively steady last week, although we did see a big tick up in PADD 1 runs as plants returned from maintenance, while PADD 2 saw a decrease as a couple of facilities just started their spring turnarounds.  Group 3 diesel prices have surged north of 20 cents/gallon this week, which could be related to the drop in refinery runs in the region. 

Some new refinery capacity did show up in this week’s report, with PADD 2 adding 9mb/day and PADD 3 adding 49mb/day. The PADD 3 figures suggest that Valero’s new coker has been included in the numbers, but Exxon’s 250mb/day Beaumont expansion still isn’t listed, even though it’s been operating for more than a month.

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