Traders Are “Mulling” Ahead Of What Seems To Be A Quiet Start To The Week
Refined product futures are trading slightly higher this morning with the prompt month distillate contract adding 2 cents to start the day and gasoline trading higher by about a penny. WTI and Brent futures are trading just on the red side of flat with a lack of headlines to push any inspired trading. Persistent inflation and a robust American economy are reported to be the factors traders are “mulling” ahead of what seems to be a quiet start to the week.
Money managers placed their bullish bets on American crude oil prices last week, adding new long positions while cutting existing shorts. The opposite is seen in refined products, however, as the ‘smart money’ added new short interest in both RBOB and HO, dropping their total net position in both contracts. Of note: the open interest in the WTI Midland contract, which began trading in 2018, hit a new all time high last week, but the speculative funds seems to be keeping away with the other category of traders making up the vast majority of positions held.
Congressional leaders are being called to the White House this week as Biden attempts to make some sort of headway in avoiding a partial government shutdown Friday. In addition to the Ukrainian Aid Package, funding for several agencies and programs are up for vote. There could be material economic impact if a consensus is not reached.
Baker Hughes reported a net increase of six oil production platforms last week, two of which came online in the Permian Basin region.
RIN prices continued to slide last week with both the D6 and D4 falling to ~$.40 per credit. There is little on the horizon to suggest this trend won’t continue, barring any mandate changes from the feds.
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News & Views
View AllULSD Futures Are Trading Higher For A 5th Straight Session
Energy prices are trying to rally Thursday as the liquidation cycle that pushed prices to multi-month lows earlier in May appears to have ended and new supply concerns trickle into the market. ULSD Futures are trading higher for a 5th straight session, and although the gains are minor at this point, they do suggest that buyers are willing to jump in near the pivotal technical support layers just below the $2.50 mark, and that the fund liquidation that pushed the HO contract to a net short position for money managers is probably over. RBOB futures are trading 8 cents above Wednesday’s low which also suggests that a buy the dip mentality may be taking hold, and now we’ll just see how long it lasts.
The latest in the drone wars: After a major Russian attack focused on Ukraine’s electricity infrastructure earlier in the week, Ukraine’s drones reportedly struck back hitting a Lukoil fuel terminal near Crimea, and a Gazprom oil refinery more than 1,000 miles from the border.
What feedstock problems? A surge of imports of used cooking oil (UCO) from China to the US, used to make RD with a lower CI score, has several domestic producers crying foul and adds to the long history of fraud surrounding renewables as bad actors try to take advantage of government subsidies.
The excess of Renewable Diesel on the west coast is only adding to the relative weakness of diesel margins for refiners who have watched their distillate cracks erode to the lowest levels since January 2022 over the past few months. A Reuters article this morning highlights the challenges that poses, and it will only get worse if the recent rebound in gasoline margins fails to hold. That excess of renewable production targeting the West Coast is also contributing to California’s LCFS values dropping to multi-year lows this week, which is putting pressure on earnings for companies that races to convert refineries to RD production in recent years.
Speaking of which, HF Sinclair reported another net loss in its renewable segment in Q1, while its traditional refineries followed the recent pattern of decent earnings that were far below year-ago levels.
Energy News Today reported a fire at the HF Sinclair refinery in Anacortes WA Wednesday which seemed to contribute to stronger basis values in the typically illiquid PNW spot market, and some tightening of allocations by suppliers in local terminals. In hopefully unrelated news, the company posted a job opening for an Emergency Response Specialist at that facility just last week.
P66 reported yet another upset at its Borger refinery Wednesday, marking the facility’s 14th TCEQ filing of the year so far. Two different sulfur recovery units were noted as being impacted by the event, but it appears the units were able to restore operations.
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Week 18 - US DOE Inventory Recap
Crude Oil, Gasoline, And Diesel Benchmarks Are All Trading >1% Lower To Start The Day
Energy prices are sinking again this morning, albeit with a little more conviction than yesterday’s lackadaisical wilting. Crude oil, gasoline, and diesel benchmarks are all trading >1% lower to start the day with headlines pointing to an across-the-board build in national inventories as the source for this morning’s bearish sentiment. The Department of Energy’s official report is due out at its regular time this morning (9:30am CDT).
WTI has broken below its 100-day moving average this morning as it fleshed out the downward trend that began early last month. While crossing this technical threshold may not be significant in and of itself (it happened multiple times back in February), the fact that it coincides with the weekly and monthly charts also breaking below a handful of their respective moving averages paints a pretty bearish picture in the short term. The door is open for prices to drop down to $75 per barrel in the next couple weeks.
Shortly after the EIA’s weekly data showed U.S. commercial crude inventories surpassing 2023 levels for the first time this year, their monthly short-term energy outlook is forecasting a fall back to the bottom end of the 5-year range by August due to increasing refinery runs over the period. However, afterward the administration expects a rise in inventories into 2025, citing continued production increases and loosening global markets hindering the incentive to send those excess barrels overseas. The agency also cut back their average gas and diesel price forecasts for the first time since February with the biggest reductions in the second and third quarter of this year.
The STEO also featured their famed price prediction for WTI, stating with 95% confidence that the price for crude oil will be between $40 and $140 through 2026.
Need a general indication of the global crude oil supply? Most headlines seem to be covering a shortage of a different type of oil, one that we haven’t turned into fuel (yet).
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