Energy Rally Takes A Breather

The energy rally is taking a breather as inventory data gives the market reason to pause, even as equity markets continue to point higher.

The API reported inventory builds across the board in the U.S. last week with crude oil inventories up 3.8 million barrels, gasoline up 4.2 million barrels and distillates up by 900,000 gallons. The EIA’s report is due out at its normal time this morning.

OPEC’s monthly oil market report left demand estimates unchanged from their last report, a less optimistic view than the IEA and EIA which had both made small upward revisions to their consumption SWAGs. The report also noted that U.S. crude oil exports were holding steady as Asian demand picked back up, while refined product exports continue to suffer as demand from Latin America continues to languish. That combination continues to pressure U.S. refiners that are struggling with weak crack spreads, and near-record product inventories.

The $1.22 range is providing upside resistance for RBOB, with the front month contract trading near that level in six of the past eight sessions but failing to hold above that level each time. This was similar to the action we saw in April when the mid $0.70 range repelled a dozen or so rallies over the course of two weeks. That resistance leaves ULSD as the only one of the big four petroleum contracts reaching new recovery highs this week, and given that’s the lowest volume contract, it faces an uphill battle to pull the rest of the complex higher on its own.

Spot ethanol prices have returned to pre-COVID-19 levels this week as gasoline demand continues its slow march higher, while many ethanol production facilities are running below capacity, or splitting time with making sanitizing products. Just like in oil refineries, ethanol plants face a complicated logistical puzzle this year as they try to match the demand recovery that’s difficult to predict.

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