U.S. Oil Fund Receives Notice From SEC
The struggle for direction continues in energy markets as early losses Wednesday were wiped out in the afternoon, only to see another wave of selling to start Thursday’s session. Doubts about demand seem to be hitting both energy and equity markets this morning after U.S. jobless claims jumped back above one million last week.
While inventory declines for crude oil and gasoline stocks in Wednesday’s DOE report were seen as bullish, particularly compared to the API’s figures, which helped RBOB futures turn morning losses into afternoon gains, demand estimates dropped to multi-month lows, and seems to have helped keep the bulls at bay. Crude oil inventories declined for a fourth straight week in the U.S., even though exports dropped one million barrels/day. Assuming exports bounce back as they typically do following a large weekly move, we should see another draw-down in inventories next week.
Refinery runs were reduced in four out of five PADDs last week, and as we move into the fall turnaround season, we are likely to see additional reductions, some of which could be permanent if margins don’t improve soon.
Colonial pipeline finished repairs and restarted its main gasoline line Wednesday night, which should soon alleviate any lingering supply tightness in the mid-Atlantic region.
Nothing too exciting from the OPEC compliance meeting. Output cuts were left unchanged, and the group pushed for the four countries that have been overproducing to reduce rates to make up for their excess over the next two months.
The U.S. oil fund received notice from the SEC yesterday that it could face enforcement for its actions in April when oil prices went off the rails. As this WSJ article points out, this situation highlights the risks in commodity ETFs that retail investors seem to struggle to comprehend.
The second of three potential storm systems being watched in the Atlantic basin is now known as Tropical Depression 13, and looks like it will be at least a tropical storm heading for Florida early next week. My non-scientific opinion: Don’t be surprised to see the system strengthen more than is currently projected once it reaches warmer waters, as has been the case quite often the past few years. Also, there is a decent chance this could move past Florida and be a disruptive system for the refineries in and around Louisiana.
The first disturbance being tracked by the NHC will still likely be a storm (which is why we don’t yet know what the names will be) but may be moving too far west to end up in the Gulf of Mexico. Then again, they thought Hurricane Harvey would dissipate over the Yucatan and we know what happened there, so it’s too soon to write this one off completely. The third disturbance will need a few more days to decide what it’s going to be, but we very well might have three named storms active in the near future.
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View AllEnergy 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.