Energy Markets Seek Stability Amid Multi-Year Lows

It’s a mixed bag for energy markets to start Thursday’s session as crude and refined products try to find a floor after touching multi-year lows earlier in the week. WTI and RBOB futures are holding onto small gains this morning after Wednesday’s bounce moved them away from the edge of a technical cliff that threatened a larger selloff. ULSD futures are trading about a half cent lower on the day and are down nearly 57 cents from a month ago with cash markets around the U.S. still hovering around levels we haven’t seen since the Ukraine war broke out nearly 4 years ago.

The EU added 41 more Russian tankers to its sanctions list as the group continues trying to turn the economic screws to force an end to the war.

Ukraine meanwhile added 1 more Russian ship to its sanctions list, with a drone attack on the port of Rostov-on-Don reportedly damaging a tanker and killing two crew members.

Diesel output in PADD 1 is holding near 6 year highs, at levels we haven’t seen since the PES refinery exploded and closed for good in 2019. That surge in output came at a great time to take advantage of diesel cracks spiking to 3 year highs in the wake of the November supply squeeze in the Atlantic basin and should help Q4 be a banner quarter for refiners in the region. That ramp up in output also helps explain why spreads have returned to earth so quickly after spiking a month ago.

Besides the sanctions and sabotage on several European refiners, another cause for the November diesel squeeze was a late October fire at Kuwait’s 615mb/day Al Zour refinery. That facility is one of the newest and largest in the region and became a major exporter to Europe when it came online late in 2022, helping to supplement lost Russian supplies. Yesterday reports were published that one of the crude units shut since that fire have been restarted, helping to ease the concerns of a shortage this winter.

The EIA this morning highlighted growth in oil output in Brazil, Guyana and Argentina helping to support its forecast for supply growth next year even as production from countries like the U.S., Russia and Venezuela is forecast to slow.

More notes from the DOE’s weekly status report:

Crude drew a little over a million barrels with another leap in export activity and refinery runs picking up. Run rates picked up in PADDs 2-4, all of which are at seasonal highs along with PADD 1 despite its decline on the week. PADD 5 experienced another setback after a month of increases and remains well below average levels.

Diesel exports far outweighed increased imports but an early drop in demand led to another bump in diesel inventories. Total stocks continue to hang well below the 5-year average but are currently running ahead of the previous two years. PADDs 1, 2, & 5 are still low enough to drag the total U.S. count down despite PADD 3 holding well above average since early October.

Gas stocks added almost 5 million barrels with increases across all PADDs except 4. There seems to be a disconnect between the implied demand stats and inventory movements this week as even with import/export flows working in favor of a build, the big pop in demand suggests a draw. Nonetheless, most PADDs increased gas storage, and all are sitting at or above average. The outlier being PADD 1, where levels have held below average since July and slipped underneath the 5-year range over the past month. Total U.S. inventories have increased consecutively to pull within a million barrels of average off an 11-year low 5 weeks ago.