Stocks Suffer Worst Day Since 1987
The roller-coaster is pointing higher this morning as stocks point to a five percent rally after suffering their worst day since 1987. RBOB gasoline continues to be the most volatile of the energy contracts this week, with 25 cent losses Thursday transitioning to 12 cent gains Friday morning, while oil and ULSD have seen swings less than half of that size.
When Thursday’s gasoline collapse settled out, prompt values for most Midwest and East Coast cash markets were below 80 cents/gallon, with Chicago CBOB taking the title as cheapest in the country, ending the day just below 75 cents/gallon. In several instances, those were the lowest prices we’ve seen since 2008. The speed of the drop this week should be an early gift for retailers, that will see huge margins that might help them weather the anticipated drop in demand over the coming weeks.
With gasoline cracks dropping nearly eight dollars/barrel on the day, it appears that some U.S. refiners may be forced to act by either reducing run rates, or moving up maintenance, both due to weak economics, and what could turn into containment issues very rapidly if some of the more dire predictions about driving demand come true.
The plunge in gasoline was also a drag on ethanol and RIN values, as both blending economics and demand expectations for bio-fuels took a big hit on the day.
While ULSD prices have been volatile, they’re paling in comparison to gasoline this week. Perhaps the most notable piece of the diesel price action is the forward curve. A month ago, the spread between prompt and three-year forward values was six cents/gallon, and today it’s nearly 43 cents/gallon, demonstrating the market’s anticipation of the demand shock hitting hard, but not lasting very long.
Crude spreads have seen similar moves as diesel. See what Warren Buffett had to say about those spreads and expectations for oil demand.
With all that’s gone on the past two months, it’s easy to forget that at the start of 2020 there were concerns that a war with Iran could send crude oil north of $100/barrel and cripple the world economy. This week, U.S. forces battling with Iranian-back militias is barely even hitting the news wires.
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.