Oil Edges Up, Gas Plunges: A Turbulent Start To The Week

It’s a mixed start for energy markets Tuesday with RBOB and WTI ticking modestly higher while ULSD futures slip back into the red. Natural gas futures are the big mover for a 2nd straight day, dropping another 4.6% this morning to reach their lowest levels since Halloween as warmer temperatures curb demand.

The Venezuela headlines continue at a furious pace, although there still seems to be minimal impact on physical markets. Stock prices for oil producers and refiners saw much larger moves on a percentage basis than the underlying oil and refined product prices have over the past two days.

A Financial Times article highlights the Gulf Coast refiners set to benefit IF Venezuelan output increases as they’re built to process the heavier, sour grades that yield more distillates. Canadian oil producers meanwhile came under selling pressure as their tar sand production competes directly with the heavy Venezuelan grades. See the table below for the over-reaction in equity markets and then read here to understand why it’s unlikely we’ll see actual supply changes coming anytime soon.

The Secretary of Energy is reportedly heading to an industry conference in Miami today to try and drum up support from oil producers to spur investment in Venezuela and meetings at the White House later in the week are rumored to try and lean on companies to take on a massive risk to produce oil the world doesn’t need with prices that aren’t attractive. While oil production may be a tough sell at the moment, gold miners may be more eager to jump back into the region as those values hold near record highs over $4,400/oz, more than 2X what they were 2 years ago.

The 8 OPEC & Friends countries that have been voluntarily adjusting output levels agreed Sunday to hold their targets steady through March, taking a page out of the FED’s playbook with a “wait and see” approach to their forward outlook. The group did reiterate their intention to hold members accountable for overproduction last year, with Iraq, Kazakhstan, Russia and the UAE the most notable offenders. Ukraine is doing their part to ensure Russia and Kazakhstan don’t overproduce, while the UAE’s recent faceoff with the Saudis in Yemen suggests the tension between the two producers runs deeper than cheating on output levels.

Saudi Arabia has cut its official selling price to Asian buyers for a 3rd straight month, in the latest sign that the world has more oil than it needs at the moment.

India’s Reliance Industries, operator of the world’s largest refinery, has denied claims that it’s been stocking up on Russian crude oil recently. That facility was reportedly the largest single buyer of Russian oil in recent years, until the latest round of sanctioned closed some of the loopholes being used for those purchases. That phenomenon highlights one of the key challenges for the oil markets this year, namely that there are two different markets for sanctioned and unsanctioned supply and sometimes it’s hard to know which is which.

P66 reported flaring at multiple units at its 265mb/day Sweeny TX refinery Monday, with the event lasting 8 hours. 9 different units were listed in the filing suggesting the issue may not be a simple fix.