Inventory Declines And Speculation On Global Supply May Be To Credit For Latest Rally In Energy Markets

Refined products are starting Wednesday’s session with 3 cent gains after another mixed performance on Tuesday. Inventory declines and new speculation on global supplies are getting credit for the latest rally attempt which is moving prices back into neutral territory on the charts, and away from the technical cliff that was looming last week.

The U.S. and India are reportedly close to a new trade agreement that would cut tariffs and include a “gradual” wind down of India’s oil purchases from Russia, although details on timing and volumes are scarce.

The EU is also re-thinking its sustainability mandates that some energy execs have referred to as an economy killer, after the U.S. and Qatar jointly warned the continent about its impact on LNG shipments that have replaced Russian supplies in recent years.

The weekly API report estimated small inventory declines in refined products of 236,000 barrels of gasoline and 974,000 barrels of diesel, while oil inventories had a larger drop of just under 3 million barrels. The DOE’s weekly status report is still due out at its normal time this AM as that branch of the government continues to shrug off the shutdown for now. The agency also issued its latest tender for a 1 million barrel SPR purchase, continuing the slow pace of re-filling we’ve seen over the past 2 years.

Tropical Storm Melissa was named Tuesday and is expected to spend the better part of a week as a hurricane churning slowly through the central Caribbean. There is “Significant Uncertainty” in the storm’s path as it spends an unusually long period of time going nowhere, but currently both the U.S. and Euro models suggest it will hook north and East back out into the Atlantic, with low odds of a Florida and East Coast threat next week. AccuWeather forecasters suggest the further the storm makes it west before hooking north, the odds of a U.S. impact increase but for now it looks like Jamaica, Haiti and Cuba are most likely to see the real impacts of this storm.

Find that on a map: A 20mb/day refinery in Dagestan was hit by drones of an “unknown origin” overnight. The facility stands roughly 500 miles from Ukraine’s border and as a Russian republic becomes a clear target in the drone wars. Meanwhile, Hungary’s largest refinery will have several units offline for months following an explosion with an unknown cause earlier in the week forcing the country to consider drawing down its strategic fuel reserves to prevent shortages. A similar explosion at a Romanian refinery owned by Russia’s Lukoil has created plenty of speculation that sabotage targeting Russia’s few remaining European allies was at play.

Meanwhile, the U.S. President cancelled plans for a summit with Russia’s leader in Hungary. The latest about face re-opens the door for diplomacy via tomahawk which could bring even more refineries into striking distance.

Today’s interesting read: A Reuters article on how Mexico’s drug cartels have turned to illegal fuel imports as a revenue stream and the efforts made to stop them. This story had an under-rated impact on terminals across the South West before a crackdown on illegal border crossings via truck, and now we see the trade has moved to the water as well.