Parade Of Winter Storms Hits Demand Across The Country
Oil and diesel prices are moving higher for an eighth straight day after Tuesday morning’s attempted sell-off proved to be short-lived. RBOB prices are struggling to keep up so far after a large build in U.S. gasoline inventories gave traders reason to pause. Tuesday’s bounce keeps the bullish trend lines intact, and the path open to test the 2020 highs set before COVID lockdowns became a reality even as more fundamental signs suggest this rally may have outkicked its coverage.
The API was reported to show a 3.5 million barrel draw in oil inventories last week, while distillates declined by just under ½ million barrels. A large build in gasoline stocks of 4.8 million barrels seems to be the reason that the March RBOB contract is the only one of the big 4 petroleum futures trading in the red this morning, while the others add modest gains. The DOE’s weekly status report is due out at its normal time this morning, with the gasoline demand number sure to be closely watched as a parade of winter storms has hit demand across most of the country in the past two weeks.
Speaking of winter weather, a major cold snap is bringing temperatures well below normal for this time of year to a wide area of the country. Already, there are reports that several utilities are putting customers on notice that this could mean curtailments in natural gas availability due to a spike in heating demand. In years past this would often mean a spike in ULSD prices as heating oil demand for homes, and dyed diesel demand for power plant supplemental fuel. While we’ve been in the midst of a very strong rally in ULSD prices the past three months, this latest cold snap doesn’t appear to be doing much so far to add more fuel to the rally, with basis and time spreads hardly reacting over the past several days. A note this morning from the EIA may help explain why as the U.S. Northeast is still sitting on inventory levels for diesel that are well above normal levels.
The latest in the long line of refining casualties in the past year: Exxon announced it is closing one of the three remaining refineries in Australia, despite efforts from the government to bridge the gap until demand picks back up.
The Chevron refinery in Richmond, CA had a spill near its wharf in the San Francisco bay, but it appears that leak was contained, and given its relatively small size of around 600 gallons should not be a major issue for the bay area, or the refineries operations unless additional damage is discovered during the investigation. Bay area fuel diffs have been under heavy pressure lately as local shutdown orders continue to hamper fuel demand.
RIN markets have been relatively quiet this week after several weeks of wild trading as the political football known as the RFS continued to be punted back and forth in Washington. This week the EPA is hearing testimony on a proposed plan by the previous administration to extend the deadlines for complying with the RFS for 2019 and 2020, although a final ruling on that matter isn’t expected until the spring.
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View AllEnergy Prices Up Over 2% Across The Board This Morning
Refined product futures traded in an 8-10 cent range yesterday with prompt heating oil settling up ~6 cents and RBOB ending up about flat. Oil prices clawed back some of the losses taken in the first two full trading days of the week, putting the price per barrel for US crude back over the $70 mark. Prices are up just over 2% across the board this morning, signifying confidence after the Senate passed the bipartisan debt ceiling bill last night.
The EIA reported crude oil inventories up 4.5 million barrels last week, aided by above-average imports, weakened demand, and a sizeable increase to their adjustment factor. The Strategic Petroleum Reserve continues to release weekly through June and the 355 million barrels remaining in the SPR is now at a low not seen since September 1983. Exports increased again on the week and continue to run well above last year’s record-setting levels through the front half of the year. Refinery runs and utilization rates have increased to their highest points this year, both sitting just above year-ago rates.
Diesel stocks continue to hover around the low end of the 5-year range set in 2022, reporting a build of about half of what yesterday’s API data showed. Most PADDs saw modest increases last week but all are sitting far below average levels. Distillate imports show 3 weeks of growth trending along the seasonal average line, while 3.7 million barrels leaving the US last week made it the largest increase in exports for the year. Gasoline inventories reported a small decline on the week, also being affected by the largest jump in exports this year, leaving it under the 5-year range for the 11th consecutive week. Demand for both products dwindled last week; however, gas is still comfortably above average despite the drop.
The sentiment surrounding OPEC+’s upcoming meeting is they’re not likely to extend oil supply cuts, despite prices falling early in the week. OPEC+ is responsible for a significant portion of global crude oil production and its policy decisions can have a major impact on prices. Some members of OPEC+ have voluntarily cut production since April due to a waning economic outlook, but the group is not expected to take further action next week.
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Prices Are Mixed This Morning As The Potential Halt In U.S. Interest Rate Hikes
Bearish headlines pushed refined products and crude futures down again yesterday. Prompt RBOB closed the month at $2.5599 and HO at $2.2596 with WTI dropping another $1.37 to $68.09 and Brent losing 88 cents. Prices are mixed this morning as the potential halt in U.S. interest rate hikes and the House passing of the US debt ceiling bill balanced the impact of rising inventories and mixed demand signals from China.
The American Petroleum Institute reported crude builds of 5.2 million barrels countering expectations of a draw. Likewise, refined product inventories missed expectations and were also reported to be up last week with gasoline adding 1.891 million barrels and diesel stocks rising 1.849 million barrels. The market briefly attempted a push higher but ultimately settled with losses following the reported supply increases implying weaker than anticipated demand. The EIA will publish its report at 10am this morning.
LyondellBasell announced plans yesterday to delay closing of their Houston refinery, originally scheduled to shut operations by the end of this year, through Q1 2025. The company “remains committed to ceasing operation of its oil refining business” but the 289,000 b/d facility remaining online longer than expected will likely have market watchers adjusting this capacity back into their balance estimates.
Side note: there is still an ongoing war between Russia and Ukraine. Two oil refineries located east of Russia's major oil export terminals were targeted by drone attacks. The Afipsky refinery’s 37,000 b/d crude distillation unit was struck yesterday, igniting a massive fire that was later extinguished while the other facility avoided any damage. The attacks are part of a series of intensified drone strikes on Russian oil pipelines. Refineries in Russia have been frequently targeted by drones since the start of the military operation in Ukraine in February 2022.