Oil Rallies To 6-Week High On Record 2023 Oil Demand Outlook

The steady recovery rally in energy prices marches on with WTI settling north of $80 for the first time in 6 weeks yesterday and keeping the upward momentum in the early trading Wednesday. RBOB continues to follow through on its technical promise after breaking through resistance last week, moving higher for a 7th straight trading session and plotting a course towards $2.80.  ULSD prices are joining the gains this morning after snapping its win streak Tuesday, but are still lagging behind, and haven’t made a real attempt at breaking their January highs.  

Today’s gains follow a bullish report from the IEA, which projects that global oil demand will hit a record high this year. Probably the most meaningful quote from the IEA’s report is that “Two wildcards dominate the 2023 Oil Market Outlook:  Russia and China.” China is forecast to account for half of global oil demand growth as they reopen from their COVID lockdowns, while Russian supplies continue to prove the creativity of traders around the world. 

One notable item in the report was that Russian diesel exports spiked to a multi-year high of 1.2 million barrels/day, most of which went to European countries, as both sides of the war rush to do what they can before the diesel embargo starts in February. That short term excess supply, coinciding with the warm winter weather that’s spared most of Europe and the US East Coast from the feared heating fuel shortages, may have been contributing to the negative start to the year for ULSD, but will not stand in the way of the bulls in a couple of weeks. 

Global refinery runs are expected to increase by 1.5 million barrels/day this year, led by the addition of more than 2.2 million barrels/day of refining capacity coming online. Like several other reports in recent weeks, the IEA also shed light on increased export quotas from China, noting that distillate volumes are already landing in Europe since those limits were raised late last year.

Motiva has spun off its trading group to parent company Saudi Aramco. The new entity Aramco Trading America’s or ATA will reportedly be the sole supplier of crude and receiver of products from Motiva’s Port Arthur refinery, which happens to be the largest in the country. There has been no reaction yet from the PGA to this announcement.

A fire injured 6 workers at the P66/Cenovus refinery complex in Borger Texas, the latest in a string of setbacks at that facility.  Reports suggest the fire was at the tank farm and not an operating unit, and no report was made of emissions to the TCEQ, so it may not have a long term impact on production. That facility doesn’t influence Gulf Coast trading given its location far to the north, but can have an outsized influence on supplies to New Mexico and Colorado, particularly with the Suncor facility outside of Denver already offline for months due to Christmas blizzard.

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