Supply Fears Are Dwindling As Temperatures Rise Across The Country

It’s another soft start for energy markets to start Thursday’s session, as supply fears are dwindling as temperatures rise across the country. Mid-day price reversals have become the theme of the year so far however, don’t be surprised to see another rally later in the day as the energy complex struggles to find a new price trend.

More refinery upsets were reported Wednesday along the Gulf Coast, but basis values actually dipped on the day, suggesting the dozens of hiccups reported this week aren’t amounting to much lost production. See the attached spreadsheet of all filings to Texas regulators to get a feel for the various challenges faced by the energy industry this week.

While Gulf Coast refiners work to return to normal operations Mid Continent facilities look like they can’t wait for drivers to get back on the road. Prompt basis values in the Group and Chicago markets are trading around 30 cent discounts to futures for gasoline and 40 cent discounts for diesel, putting their values 20-30 cents lower than their neighbors on the Gulf Coast. This phenomenon has brought a return of an old seasonal pattern where markets in North Texas, Arkansas and Tennessee fed by Gulf Coast facilities see buyers disappear as trucks long haul barrels from neighboring markets. 

While there is another cold snap forecast to start tomorrow, it looks like the Gulf Coast refining zone will only dip down to freezing temps for a few hours, so it’s unlikely we’ll have another round of upsets like we experienced earlier this week. 

Talking their own books? Continuing a recent trend, the IEA sounded much more bearish than OPEC in its Monthly Oil Market outlook, predicting oil demand will increase by just 1.2 million barrels/day in 2024, compared to an increase of 2.2 million barrels/day predicted yesterday by the cartel. The IEA is also predicting more non-OPEC supply growth next year (1.5 million barrels/day vs 1.3 for OPEC’s forecast) which they think will keep a lid on prices despite the growing tensions in the Middle East. 

Markets continue to shrug off new attacks in the Red Sea, with oil prices ticking lower despite a 3rd ship this week being hit by a drone, which brought about more retaliatory strikes from the US. While the violence has caused many ships to take the long way to Europe, and caused freight rates to rise, the impact of physical supplies of oil, refined products and LNG supplies all appear to be minimal at this point.  

Iran vs the world? As if the proxy battles via Hamas, Hezbollah and the Houthi’s, or the attacks on tankers near the Strait of Hormuz weren’t enough, Iran appears to now be at war with Pakistan. While this latest escalation certainly doesn’t help soothe the frayed nerves in the region, it could actually end up being bearish for oil prices as it becomes clear that Iran is going alone in its various meddling and does not (so far) have the support of neighboring Arab nations that control more of the world’s petroleum production.

The API reported more inventory builds last week, with gasoline stocks up 4.8 million barrels, diesel up 5.2 million barrels while crude oil inventories had a small increase of around ½ million barrels. The DOE’s weekly report is due out at 11am eastern today. Reminder that this week’s report is based on data reported last Friday, so any impacts from this week’s weather events will not show up until next Wednesday’s report. 

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