ULSD Prices Down Almost 14 Cents On The Day After Being Up Nearly A Nickel Overnight
Energy futures saw a heavy wave of selling in the past hour that had ULSD prices down almost 14 cents on the day after being up nearly a nickel overnight, while RBOB prices dropped a dime from their overnight highs. But, as has come to be the March norm, if you don’t like those prices just wait 15 minutes and they’ll change.
Prior to this morning it had been another strong week for most petroleum contracts, and so far the wave of selling (and subsequent bounce) hasn’t threatened any trend-lines, so it’s too soon to say this is anything more than a brief pullback.
There are 5 more trading days for the April ULSD contract, which has already smashed the all-time record for highest price, and has now broken the record for the largest single month timing spread, trading 37 cents over the May contract earlier today. That extreme backwardation continues to wreak havoc on basis markets around the country, with some regions seeing record lows, while others are seeing record highs, depending on which side of that HO curve they’re trading.
A promise to ship more US LNG to Europe is getting the headlines, but really it’s more likely the lack of European sanctions on Russian energy that are contributing the selloff, as the actual capacity for more LNG shipments in the near term are limited.
Why are LNG shipments limited when the US has so much natural gas and has been expanding its export capabilities for years? The main reason is those LNG export facilities were already at or near capacity, as they signed long-term commitments with buyers in order to ensure the multi-billion dollar investments needed would pay off, and then a distant second because the FERC recently decided to make the process for approving new natural gas pipeline systems extremely challenging to protect the environment, which makes some yearn for the days of The Big Inch.
The US charged 4 Russian Government officials for hacking operations targeting US energy facilities and a Saudi oil refinery from 2012-2018. The timing of the charges is no doubt intended to add pressure to Russia, and to US companies that have been warned repeatedly of the potential for cyberattacks. Anyone in the refined products industry shouldn’t need a reminder of that threat as we approach the 1 year anniversary of the Colonial pipeline shutdown.
Meanwhile, in other refinery news, unconfirmed reports this week have surfaced that Russian forces accidentally bombed their own oil refinery this week, in what would be a nice bit of karma to end the week with, if it’s true.
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.