Prices Tick Higher Ahead Of Virtual Meeting
Prices are ticking higher ahead of the virtual meeting among OPEC and its former allied nations that’s scheduled to start at 9 a.m. central. As the rumors from that meeting start to trickle out, don’t be surprised to see some extremely choppy action as the results of this meeting could be the difference between oil dropping below $20 and rallying back above $40.
While Russia may still be the lynchpin in any OPEC & Friends oil output cut deal, the country is having to consider banning gasoline imports from its European neighbors that are threatening their domestic refinery production. That scenario sheds light on a harsh reality facing oil producers these days. Even if the OPEC alliance cuts production by 15 million barrels/day, that is not enough to offset the drop in demand until the shelter in place orders are removed.
How crazy is the rush for storage becoming? As the traditional tankage on shore, at sea and in rail cars is quickly gobbled up, there’s now a suggestion we could see oil in bags just like your favorite boxed wine. Based on the DOE’s latest weekly data, the U.S. could handle four more weeks of the recent 13-15 million barrel/week increases in oil inventories before reaching the all-time highs set in 2017, and the SPR storage opening could offer another three to six weeks’ worth of room, although logistical bottlenecks will limit what is able to be stored.
Is the bearish sentiment coming to an end? U.S. gasoline stocks rose by 10.5 million barrels last week according to the DOE’s weekly report – the second largest increase on record - and yet gasoline futures ended the day with solid gains. Buyers may be encouraged by gasoline output dropping to keep pace with the fall in demand, but cash markets still aren’t showing that optimism with multiple regional grades still trading 40 cents or more below futures, forcing rack prices in a few distressed markets to drop below 10 cents/gallon Wednesday.
U.S. refinery runs have dropped to levels not seen since Hurricane Harvey knocked more than 20 percent of domestic capacity offline 2.5 years ago. The difference this time is instead of seeing cars lined up for blocks in a rush to fill up, we’re seeing retail gasoline below $1/gallon in more markets daily and empty pumps.
Weekly jobless claims in the U.S. were reported at 6.6 million last week, bringing the three week total north of 16 million since stay at home orders became widespread, dwarfing anything we’ve seen before.
Click here to download a PDF of today's TACenergy Market Talk.
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Energy 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.
Click here to download a PDF of today's TACenergy Market Talk
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.