Oil Traders Pointing To Economic Measures And Divining A Drop In Oil Demand

Market TalkWednesday, Aug 23 2023
Pivotal Week For Price Action

Gasoline futures continue sliding this morning, dropping over 2% so far in pre-market trading, leading the energy complex lower. The prompt month RBOB contract started its bearish trendline Monday of last week and has only seen three days of slight gains since. On the charts, this morning’s price action has been buoyed by its 50-day moving average and if that support level is broken, a test of the 100-day MA at the $2.65 level will seem imminent.

Dismal PMI (Purchasing Managers’ Index) figures from some of the world’s largest producers is being blamed for today’s bearish sentiment in energy markets. The index, used to measure a country’s manufacturing productivity, dropped for a third straight week in Japan, and fell more than expected for European countries. With not a lot else going on this morning, oil traders are pointing to these economic measures and divining a drop in oil demand.

Certainly not abating the bearish sentiment, the EIA highlighted their estimate for an increase in oil production for 2023-2024 that they originally published earlier this month in their Short Term Energy Outlook. The Agency attributes the anticipated growth to an increase oil well productivity, particularly in the Permian Basin. Counter to today’s headlines, lower global inventories and generally higher prices are what the EIA foresees for the next couple of years.

Tropical Storm Harold made landfall on South Padre Island yesterday, located about 40 miles south of Corpus Christi. Although not much has come from hurricane activity so far this year, how rapidly the Atlantic basin produced five major storms in the span of a week is sounding the klaxon that more is to come.

The American Petroleum Institute published their US energy inventory estimates yesterday afternoon with the most notable of the headline values being a ~2.4-million-barrel drop in crude oil stockpiles. Gasoline stocks was the only builder, adding 1.9 million barrels last week while distillates stayed in the background, dropping 150,000 barrels. The official report published by the Department of Energy is due out at its normal time this morning (9:30 CDT).

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Market Talk Update 08.23.2023

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Pivotal Week For Price Action
Market TalkTuesday, Nov 28 2023

Values For Space On Colonial’s Main Gasoline Line Continue To Drop This Week

The petroleum complex continues to search for a price floor with relatively quiet price action this week suggesting some traders are going to wait and see what OPEC and Friends can decide on at their meeting Thursday. 

Values for space on Colonial’s main gasoline line continue to drop this week, with trades below 10 cents/gallon after reaching a high north of 18-cents earlier in the month. Softer gasoline prices in New York seems to be driving the slide as the 2 regional refiners who had been down for extended maintenance both return to service. Diesel linespace values continue to hold north of 17-cents/gallon as East Coast stocks are holding at the low end of their seasonal range while Gulf Coast inventories are holding at average levels.

Reversal coming?  Yesterday we saw basis values for San Francisco spot diesel plummet to the lowest levels of the year, but then overnight the Chevron refinery in Richmond was forced to shut several units due to a power outage which could cause those differentials to quickly find a bid if the supplier is forced to become a buyer to replace that output.

Money managers continued to reduce the net length held in crude oil contracts, with both Brent and WTI seeing long liquidation and new short positions added last week. Perhaps most notable from the weekly COT report data is that funds are continuing their counter-seasonal bets on higher gasoline prices. The net length held by large speculators for RBOB is now at its highest level since Labor Day, at a time of year when prices tend to drop due to seasonal demand weakness. 

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Pivotal Week For Price Action
Market TalkMonday, Nov 27 2023

After Another Black Friday Selloff Pushed Energy Futures Sharply Lower In Last Week’s Holiday-Shortened Trading

After another Black Friday selloff pushed energy futures sharply lower in last week’s Holiday-shortened trading, we’re seeing a modest bounce this morning. Since spot markets weren’t assessed Thursday or Friday, the net change for prices since Wednesday’s settlement is still down more than 6-cents for gasoline and almost 5-cents for diesel at the moment.

OPEC members are rumored to be nearing a compromise agreement that would allow African producers a higher output quota. Disagreement over that plan was blamed on the cartel delaying its meeting by 4-days last week which contributed to the heavy selling. The bigger problem may come from Russia, who announced plans last week to increase its oil output once its voluntary cut agreement ends now that price cap mechanisms are proving to be ineffective

While an uneasy truce in Gaza held over the weekend, tensions on the Red Sea continued to escalate with the US Navy intervening to stop another hijacking and being rewarded for its efforts by having missiles fired at one of its ships.  

RIN values came under heavy selling pressure Wednesday afternoon following a court overturning the EPA’s ruling to deny small refinery hardship waivers to the RFS. Those exemptions were a big reason we saw RINs drop sharply under the previous administration, and RINs were already on due to the rapid influx of RD supply this year.

More bad news for the food to fuel lobby: the White House is reportedly stalling plans to allow E15 blending year-round after conflicting studies about ethanol’s ability to actually lower carbon emissions, and fuel prices. Spot prices for ethanol in Chicago reached a 2.5 year low just ahead of the holiday.  

Baker Hughes reported the US oil rig count held steady at 500 active rigs last week, while natural gas rigs increased by 3. 

The first of perhaps several refining casualties caused by the rapid increase in new capacity over the past two years was reported last week. Scotland’s only refinery, which has a capacity of 150mb/day is preparing to shutter in 2025.

The CFTC’s commitment of traders report was delayed due to the holiday and will be released this afternoon.

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Pivotal Week For Price Action
Market TalkWednesday, Nov 22 2023

Week 47 - US DOE Inventory Recap