Oil & Diesel Prices Attempting Modest Rally
Oil & diesel prices are attempting a modest rally to start the week, on the back of a few bullish headlines over the weekend, but plenty of headwinds remain that might challenge any attempt to sustain a move higher.
There were a variety of headlines from the Middle East over the weekend: Most notably, Saudi Arabia replaced its energy minister with a royal family member, who promptly pledged his commitment to the current output cuts to balance global supplies.
Iran meanwhile announced its long-delayed cargo of oil had finally been delivered, and suggested that they were preparing to release the British tanker they’ve been holding, although details on both stories are scarce. The British tanker release would seem bearish for prices as it temporarily relieves tensions around the world’s busiest oil shipping lanes, while the oil delivery news could be bullish if the Iranians found a new way to get their product to Syria. Bloomberg had an interesting read over the weekend on the challenges of tracking Iranian oil.
We’re in the peak of hurricane season, and after 2 weeks of destruction from Dorian, 3 more potential systems are being watched for development in the Atlantic, in addition to Tropical Storm Gabrielle which poses no threat to the US. The good news is the first 2 systems are only given 20% chances of development by the NHC. The third, which is currently a wave moving over Africa, seems more likely to become a threat sometime next week.
A Reuters article is highlighting the challenges the White House is facing balancing Big Ag and Big Oil interests, which seems to have RIN values rallying off of their lows for the year. There’s still no word on what exactly the EPA or the White House will announce, but there is an expectation that some concession will be made to appease the farm lobby that could be bullish for ethanol, biodiesel and/or their associated RINs.
Baker Hughes reported a decrease of 4 active oil rigs last week, marking a drop of 32 rigs in the past 3 weeks, putting the total US count at 738, its lowest level in nearly 2 years.
Speculators remain cautious on energy prices, with money managers net-long holdings in WTI and Brent remaining below their 5 year averages, although Brent did see a modest increase last week. Those large funds look to be even more critical of refined products as ULSD saw a drop back to a net-short position (betting on lower prices) in the managed money category last week, while RBOB saw another large drop in net-length as the 2019 driving season ended.
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Week 18 - US DOE Inventory Recap
Crude Oil, Gasoline, And Diesel Benchmarks Are All Trading >1% Lower To Start The Day
Energy prices are sinking again this morning, albeit with a little more conviction than yesterday’s lackadaisical wilting. Crude oil, gasoline, and diesel benchmarks are all trading >1% lower to start the day with headlines pointing to an across-the-board build in national inventories as the source for this morning’s bearish sentiment. The Department of Energy’s official report is due out at its regular time this morning (9:30am CDT).
WTI has broken below its 100-day moving average this morning as it fleshed out the downward trend that began early last month. While crossing this technical threshold may not be significant in and of itself (it happened multiple times back in February), the fact that it coincides with the weekly and monthly charts also breaking below a handful of their respective moving averages paints a pretty bearish picture in the short term. The door is open for prices to drop down to $75 per barrel in the next couple weeks.
Shortly after the EIA’s weekly data showed U.S. commercial crude inventories surpassing 2023 levels for the first time this year, their monthly short-term energy outlook is forecasting a fall back to the bottom end of the 5-year range by August due to increasing refinery runs over the period. However, afterward the administration expects a rise in inventories into 2025, citing continued production increases and loosening global markets hindering the incentive to send those excess barrels overseas. The agency also cut back their average gas and diesel price forecasts for the first time since February with the biggest reductions in the second and third quarter of this year.
The STEO also featured their famed price prediction for WTI, stating with 95% confidence that the price for crude oil will be between $40 and $140 through 2026.
Need a general indication of the global crude oil supply? Most headlines seem to be covering a shortage of a different type of oil, one that we haven’t turned into fuel (yet).
Click here to download a PDF of today's TACenergy Market Talk.
The Perceived Cooling Of Regional Tensions In The Middle East Area Attributing To The Quiet Start To Today’s Trading Session
The energy complex is drifting lower this morning with RBOB futures outpacing its counterparts, trading -.9% lower so far to start the day. The oils (WTI, Brent, heating) are down only .2%-.3% so far this morning.
The perceived cooling of regional tensions in the Middle East area attributing to the quiet start to today’s trading session, despite Israel’s seizure of an important border crossing. A ceasefire/hostage-release agreement was proposed Monday, and accepted by Hamas, but rejected by Israel as they seemingly pushed ahead with their Rafah offensive.
U.S. oil and natural gas production both hit record highs in 2023 and continue to rise in 2024, with oil output currently standing at 13.12 million barrels per day and January 2024 natural gas production slightly exceeding the previous year. With WTI currently changing hands at higher than year-ago levels, this increased production trend is expected to continue despite a decrease in rigs drilling for these resources.
Less than a week after the Senate Budget Committee’s hearing centered on the credibility of big oil’s climate preservation efforts, a major oil company was reported to have sold millions of carbon capture credits, without capturing any carbon. Fraud surrounding government subsidies to push climate-conscious fuel initiatives is nothing new, on a small scale, but it will be interesting to see how much (if any) of the book is thrown at a major refiner.
Today’s interesting read: sourcing hydrogen for refining.
Click here to download a PDF of today's TACenergy Market Talk.