Tug Of War Based On Fear
We’re witnessing a tug of war based on fear that’s creating a choppy market for energy prices as September trading comes to a close. Reminder today is the expiration day for October RBOB and ULSD contracts, so watch the RBX and HOX contracts for direction if your market hasn’t already flipped to pricing vs November futures.
Fears of widespread energy shortages in Europe and China have pushed some contracts to 3 year highs this week, while fears of the next financial crisis caused by a potential debt default from either Evergrande or the US government are pulling them back down. Even within the energy complex there’s a rift as ULSD and Brent prices look poised for a technical breakout to the upside, while RBOB and WTI contracts are showing signs of weakness.
RINs had a second straight strong day, trading up to $1.08 for D6 (ethanol) RINs in the afternoon as political pressure continues to be talked about and some in the market seem to be calling BS on the alleged leaked RVO volumes.
Want a simple, non-fear-related reason why diesel prices are holding near 3 year highs? Take a look at the “Diesel Days of Supply” chart below from the DOE’s weekly report. The 5 year seasonal average is 39 days of diesel supply, last year at this time we averaged 44 days of supply, and this year, we’re just over 30 days. Most years this number doesn’t bottom out until harvest demand slows in November, which may mean we see some very tight markets over the next 2 months.
We saw a big increase in PADD 3 refinery runs last week as all but 2 of the 9 refineries shut by Ida now look to be fully online. All 4 other PADDS saw run rates decline however as seasonal maintenance gets into full swing, and there have been a handful of unplanned issues over the past 2 weeks, most notably the fallout from the LA earthquake. PADD 3 rates are probably near a short term plateau however as Shell’s Norco facility still needs at least 2 more weeks to come online, and the P66 alliance facility will need many months, if it comes back at all.
Tropical Storm Victor was named, and is expected to become a hurricane this weekend. Fortunately, like his predecessor Sam, Victor looks to be a fish storm that will not threaten the US Coast, allowing an extended respite after a record-setting 18 storms have made a US landfall in the past 2 seasons, with 2 more months to go in this one.
Today’s interesting read: The complexity of tearing down an oil refinery.
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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.