Energy Markets Dipping, Trade Deals, And Stockpiling

Energy futures are giving back most of the gains made in the front half of the week as several bearish fundamental notes have been published in the past 24 hours. ULSD futures are down nearly a nickel just before 8am central, while RBOB futures are off just over 3 cents. The monthly data deluge from the EIA, IEA and OPEC all seem to show global supplies set to continue growing, which for the moment seems to be enough to offset concerns about new sanctions and spreading wars.

OPEC left its supply & demand forecasts unchanged from last month, highlighting a “stable” economic growth trajectory globally in its monthly report. The report further highlighted how trade deals done in the past few months have eased fears of economic harm done by tariffs with roughly 70% of U.S. trade now covered by agreements even before the supreme court rules on whether or not most of the tariffs levied this year are even legal. The cartel’s output increased by 509mb/day in August, half of which came from Saudi Arabia, as the group continued to unwind its voluntary production cuts.

As has often been the case in recent years, the IEA sounded much more bearish than its rival in its monthly report, even as it revised its world oil demand forecast slightly higher from August as OECD growth has exceeded the agency’s expectations. The IEA highlighted that global oil stocks grew for 6 straight months this summer and are expected to continue growing as the OPEC unwind continues, even though actual output increases will trail the targets by 1 million barrels/day or more since several countries are already overproducing their quotas. The IEA also highlighted that both global liquids production and refinery runs reached record levels in August, although refinery run rates are expected to drop sharply through October due to a busy fall maintenance schedule. One other note that’s getting more attention lately is the oil stockpiling being done by China that’s helped absorb much of the new supply coming onto the market this year. According to these estimates, China has added more than 64 million barrels to its stockpiles in the past 6 months, absorbing 1/3 of the global supply growth, which makes you wonder if they’re calling a market bottom, or preparing for something bigger.

PBF reported unplanned flaring at its 166mb/day Torrance (LA-area) refinery Wednesday night due to a Mechanical/Electrical malfunction. The facility was already undergoing extended repairs due to an earlier upset that had contributed to sharply higher differentials in the local market over the past two weeks, but it’s unclear if this latest event is just a routine snag as they go through the always-dangerous startup procedures, or a new issue altogether.

The National Hurricane Center is tracking another tropical wave off the African coast this week but is giving just 30% odds of this system being named in the next week as a pocket of dry air continues to hinder development over the open Atlantic. AccuWeather forecasters meanwhile continue to highlight more favorable conditions for storm development in the back half of the month, particularly in the Caribbean and Gulf.

The Reuters Renewable Rumor mill was at it again Wednesday with another report citing unnamed sources suggesting the White House is considering a plan that would only reallocate half of the exempted Small Refinery Exemption RIN volumes to other plants. D6 values traded down to 93 cents in the morning, some 21 cents below where they were following the actual SRE announcement from the EPA a few weeks ago, before finding a bid and ending the day around 97 cents this morning.

Notes from the EIA’s weekly status report. See charts attached.

Crude stocks increased with weakened exports and post-holiday demand taking a hit. PADD 3 contributed to the bulk of the build as refinery runs there decreased about 1mm barrels over the week. Runs increased substantially in PADD 2 but not enough to outweigh the drops in PADDs 3 & 5, leaving total US runs and the utilization rate at seasonal highs.

Gas and diesel inventories increased across the board, except for a slight drop in PADD 4 gas, with demand for both products slumping coming out of Labor Day weekend. Demand experienced a run up heading into the holiday and a dip coming out as is typical around holidays, although the phenomenon was more exaggerated for diesel this year on both ends.

Diesel stocks had large volume increases in PADDs 1 & 2 and big percentage increases in PADDs 4 & 5. PADD 1 surpassed 2023 levels for the first time since January this year but are still at the lower end of the range. PADD 2’s largest increase of the year still leaves inventories below their 5-year average after running well under that level since the beginning of summer. PADD 5 traditional diesel levels are holding above average but when including RD they’re charting new seasonal highs. Gas stocks increased most everywhere but in small amounts, leaving total US inventories below average, around 2023 levels. PADD 5 continues to be the only region showing ample supply and is currently running along the high end of its 5-year range. Diesel basis values along the West Coast have been holding at lofty premiums to futures for the past couple of weeks, but these inventory levels make you think that might not last much longer.