Energy Markets Show Modest Gain On Mixed Economic Data, Strong Demand Estimates

Energy markets are moving modestly higher Friday morning after another whipsaw session Thursday that saw heavy morning losses following a strong payroll report wiped out in the afternoon thanks in part to some strong demand estimates from the DOE.

After another quiet overnight session, refined product prices jumped immediately following the June federal payrolls report this morning, that showed 209,000 jobs added, which was less than half of yesterday’s big estimate from ADP that spooked equity markets. Adding to the bad news is good news theme, downward revisions took away 110,000 jobs from prior estimates. The headline unemployment rate ticked down to 3.6%, but the U-6 rate (aka the real rate) ticked up to 6.9% marking the highest level in a year. 

The DOE’s weekly status report had the highest weekly gasoline demand estimate in nearly 18 months, as the record-setting travel predictions ahead of the 4th of July seem to have come true.  The big question now for refiners wondering how far their margins will fall from last year’s record levels, is how bad the holiday hangover effect will be on demand this year.  The big tick higher in consumption combined with the 4th straight reduction in total refinery runs pushed US gasoline days of inventory on hand to their lowest levels of the year, and below the 5-year seasonal range.

Diesel demand saw a healthy recovery off of last week’s terrible estimate that put consumption back to COVID lockdown levels but remains below average for this time of year. Despite that soft consumption, diesel stocks remain well below average in most PADDs, which is causing some to start worrying about the next supply crunch if the trucking recession soon comes to an end. The contrary argument is that PADD 5 stocks still don’t account for the major influx of Renewable Diesel in the “total diesel” inventories, so the actual stocks on hand are sure to be much higher than shown.  

Crude oil stocks declined last week even though refinery runs dropped, the EIA released more barrels from the SPR, imports increased and exports decreased. How can that be possible?  The adjustment factor dropped by 1.2 million barrels/day, which essentially means there were 8 million barrels of oil taken away from the figures that can’t be accounted for. This large gap in the reporting helps explain why the agency’s total petroleum demand figures are no longer a figure watched closely by the industry.

Colorado State increased its 2023 Atlantic hurricane forecast Thursday and now calls for an above-average season, but also notes larger than normal uncertainty in its outlook. The new forecast calls for 9 hurricanes from 7, and 4 Major storms, up from 3. For the time being the tropics are quiet in the Atlantic basin, with a healthy amount of Saharan dust helping to limit development after a flurry of activity 2 weeks ago.

California reached a deal with truck manufacturers to ease the states zero emissions goals to better align with the EPA’s standards, and reality. CARB also committed to “Providing no less than 4 years of lead time and at least 3 years of regulatory stability before imposing the zero-emissions requirements. Depending on your definition of regulatory stability, that promise may mean those restrictions will never move forward.

Meanwhile, the EPA’s is proposing to change its GHG reporting requirements to close gaps in that process such as methane releases.

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