Sizable Draw In Crude Oil Inventories
A sizable draw in crude oil inventories as estimated by the American Petroleum Institute inspired after-hours buying in energy futures yesterday. After an already strong day, seeing gains of over $1 per barrel during the formal session, the reported +11 million barrel drop in national crude stores sent WTI futures another 90 cents higher as of this morning.
Tropical Storm Dorian is bearing down on Puerto Rico this morning and is expected to make landfall later this afternoon. Overnight developments have upgraded the storm’s forecast to probable hurricane status as it reaches the American mainland early Monday morning. The entire east coast of Florida and Georgia fall within the storm’s forecasted cone of uncertainty, marking any point along that portion of the seaboard as possible landfall destinations. The anticipated impact to energy infrastructure remains minimal as there are no refineries in the storms projected path however, as we saw last night, things can change quickly.
Likewise, yesterday’s Tropical Depression Six was upgraded early this morning and claimed the 5th named storm so far this season. Tropical Storm Erin’s estimated trajectory is now pointed squarely at Halifax, staying off the US East coast by about 150 miles. However, the estimated path has pulled further east over the last 24 hours which suggests it could still pose a threat.
Futures seem to be shrugging off a slew of bearish headlines going into mid-week: recession fears on lower treasury yields, the possibility of the return of Iranian barrels to the international market, and posturing by China that it expects trade trifles to continue. It will be interesting to see if any of these factors will take hold in energy prices if the Department of Energy’s weekly inventory report (due out at 10:30am CDT) disproves the API’s estimate.
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Week 17 - US DOE Inventory Recap
The Energy Complex Is Trading Modestly Lower So Far This Morning With WTI Crude Oil Futures Leading The Way
Energy Futures Are Drifting Quietly Higher This Morning
Refined Products Holding Close To Break Even While Oil Prices Are Losing Just Under 1%
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Week 17 - US DOE Inventory Recap
The Energy Complex Is Trading Modestly Lower So Far This Morning With WTI Crude Oil Futures Leading The Way
The energy complex is trading modestly lower so far this morning with WTI crude oil futures leading the way, exchanging hands $1.50 per barrel lower (-1.9%) than Tuesday’s settlement price. Gasoline and diesel futures are following suit, dropping .0390 and .0280 per gallon, respectively.
A surprise crude oil build (one that doesn’t include any changes to the SPR) as reported by the American Petroleum Institute late Tuesday is taking credit for the bearish trading seen this morning. The Institute estimated an increase in crude inventories of ~5 million barrels and drop in both refined product stocks of 1.5-2.2 million barrels for the week ending April 26. The Department of Energy’s official report is due out at it’s regular time (9:30 CDT) this morning.
The Senate Budget Committee is scheduled to hold a hearing at 9:00 AM EST this morning regarding a years-long probe into climate change messaging from big oil companies. Following a 3-year investigation, Senate and House Democrats released their final report yesterday alleging major oil companies have internally recognized the impacts of fossil fuels on the climate since as far back as the 1960s, while privately lobbying against climate legislation and publicly presenting a narrative that undermines a connection between the two. Whether this will have a tangible effect on policy or is just the latest announcement in an election-yeardeluge is yet to be seen.
Speaking of deluge, another drone attack was launched against Russian infrastructure earlier this morning, causing an explosion and subsequent fire at Rosneft’s Ryazan refinery. While likely a response to the five killed from Russian missile strikes in Odesa and Kharkiv, Kyiv has yet to officially claim responsibility for the attack that successfully struck state infrastructure just 130 miles from Moscow.
The crude oil bears are on a tear this past week, blowing past WTI’s 5 and 10 day moving averages on Monday and opening below it’s 50-day MA this morning. The $80 level is likely a key resistance level, below which the path is open for the American oil benchmark to drop to the $75 level in short order.
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Energy Futures Are Drifting Quietly Higher This Morning
Energy futures are drifting quietly higher this morning as a new round of hostage negotiations between Israel and Hamas seem to show relative promise. It seems the market is focusing on the prospect of cooler heads prevailing, rather than the pervasive rocket/drone exchanges, the latest of which took place over Israel’s northern border.
A warmer-than-expected winter depressed diesel demand and, likewise, distillate refinery margins, which has dropped to its lowest level since the beginning of 2022. The ULSD forward curve has shifted into contango (carry) over the past month as traders seek to store their diesel inventories and hope for a pickup in demand, domestic or otherwise.
The DOE announced it had continued rebuilding it’s Strategic Petroleum Reserve this month, noting the addition of 2.3 million barrels of crude so far in April. Depending on what the private sector reported for last week, Wednesday’s DOE report may put current national crude oil inventories (include those of the SPR) above the year’s previous levels, something we haven’t seen since April of 2022, two months after Ukraine war began.
The latest in the Dangote Refinery Saga: Credit stall-out, rising oil prices, and currency exchange.
Click here to download a PDF of today's TACenergy Market Talk.