Reversal Thursday Is In Effect To Start Thursday’s Trading
Reversal Thursday is in effect to start Thursday’s trading, pushing prices modestly lower after a strong 3 day rally for both energy and equity markets. While the recovery rally this week puts the threat of a bear market on hold, refined products still need to add another 5-7 cents in order to break chart resistance and put an end to the 7 week slide.
While yesterday’s DOE report was largely shrugged off, it’s clear that near term fundamentals probably aren’t the reason for prices bouncing 25 cents this week, and may provide headwinds to future rally attempts. The holiday demand hangover hit hard, and helped drive big increases in gasoline and diesel inventories across the country. After a 2nd straight healthy increase in inventories, US gasoline supplies look like they’ve officially made the turn higher for winter, and should continue building for the next 8-10 weeks before beginning the spring drawdown.
Refinery runs reached a 3 month high as refiners continue to come out of a busy fall turnaround season, and deal with a rash of unplanned upsets all over the country. While production is increasing, it’s still not back to where it was before Hurricane Ida hit the Gulf Coast in August. PADD 2 runs saw the bulk of the increase, which should help to alleviate the extreme product tightness that followed most Ohio refineries being knocked offline in the past month.
Ethanol production jumped last week as producers race to take advantage of the highest prices in a decade, before the inevitable collapse with forward values trading more than $1 below prompt barrels. RIN values stabilized yesterday after Tuesday’s whipsaw action, trading between $1.02-$1.10 for D6 ethanol RINs on the day.
As the natural gas chess match between the US & Russia ramps up, the EIA is highlighting that new export facilities along the Gulf Coast will create the world’s largest LNG export capacity by the end of next year. Will that be enough to prevent another energy supply crunch in Europe if Russia turns off the taps in retaliation for sanctions? It’s hard to see how they could any time soon, when Russia is currently providing nearly 30% of European gas supplies, while the US accounts for only 3% and most US exports are heading to Asia.
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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.
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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.