ULSD Wiped Out The 8 Cent Gains From Tuesday
Energy contracts were trying to bounce to start Thursday’s session after another heavy wave of selling knocked them sharply lower on Wednesday and saw ULSD wipe out the 8 cent gains from Tuesday.
WTI has traded lower for 6 consecutive trading sessions, but still doesn’t look overly bearish on the charts, as it remains above the lows set in each of the prior 3 months. That said, the contract is “only” $5 away from setting new lows for the past year, and if the December support near $70 breaks, there’s not much on the charts to stop a slide to $62.
Russia is trying to stop the slide in oil prices, with reports suggesting plans to cut exports from Western ports by 25%, in excess of the already announced production cuts. The relative lack of reaction to that latest attempt to stir the oil pot is yet another sign of the weak market sentiment compared to a year ago when the war broke out.
ULSD still looks the most bearish on the charts, even though fundamentally there’s a strong argument that diesel stocks remain in the most precarious position. Even with today’s modest gains, ULSD prices are just 7 cents off of their lows for the past 12 months and if the $2.66 range fails to hold it looks like there’s a good chance, we’ll see a quick move towards $2.50.
The API reported another large build in US Crude stocks of nearly 10 million barrels last week, adding to last week’s estimate of a 10.5-million-barrel gain. The API’s figures seem to be catching up to the EIA’s data that showed stocks swelled by 16 million barrels last week as refiners cut runs due to heavy maintenance scheduled and numerous unplanned outages. The API also estimated small builds in gasoline and diesel inventories, in line with seasonal expectations. The EIA’s report is due out at 11am Eastern.
California’s LCFS credits spiked to a 6 month high this week after CARB suggested it would propose accelerating its emissions reduction targets this week to prop up prices that have come under steady selling pressure over the past 2 years thanks to a surge in renewables production. The $20 increase in credits this week adds roughly 2.5 cents/gallon to the cost of each gasoline and diesel (which create a deficit under the program) sold in the state but increases the value of Renewable Diesel by 10-13 cents/gallon depending on the CI value of the product.
California’s Cap and Trade program credits (CCAs) didn’t move on this news, as that program has a set credit amount, rather than a mechanism for renewable producers to create credits. The February CCA auction results are expected later this afternoon, which can be a market moving event depending on where prices settled out in the quarterly auction vs where they’ve been trading in the open market.
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March Trading Is Going Out Like A Lamb As Energy Prices Continue To Search For Direction
Refined Products Are Moving Lower For A 2nd Day After Coming Under Heavy Selling Pressure In Wednesday’s Session
Crude Oil Prices Are Trying To Lead Another Rally In Energy Futures This Morning
Week 13 - US DOE Inventory Recap
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View AllMarch Trading Is Going Out Like A Lamb As Energy Prices Continue To Search For Direction
March trading is going out like a lamb as energy prices continue to search for direction with Bears focused on soft demand and fears of a recession, while the Bulls can see supply shortages and the risk of disruption lurking around the corner.
While March felt chaotic with a new banking crisis and plenty of other domestic and geopolitical controversy going on around us, it was actually a relatively tame month for refined product futures. The trading range for diesel in March was actually the smallest we’ve seen since before the war broke out and was just ¼ of the range we saw in March a year ago.
Protesters in France agreed to extend refinery strikes through April 4th, which is keeping close to 1 million barrels/day of refining capacity offline. A Business Wire note this morning highlighted how these strikes may be rapidly depleting the stockpiles built up ahead of February’s sanctions that banned Russian diesel imports.
The Dallas FED confirmed what we’ve been seeing in the weekly rig counts, showing that activity in the energy sector has stalled out in the first quarter of 2023. Executives surveyed lowered their Crude oil price outlook for the end of the year by $4/barrel from the previous survey but made a much larger change to expectations on Natural Gas prices, slashing those estimates by nearly 40% since Q4.
As if banks don’t have enough on their plate these days: There were reports this week that Wells Fargo is looking to expand its energy trading business. There are also reports that Wells Fargo was fined nearly $100 million for sanctions violations, is under investigation by the CFTC for illegal trading communications, and that a former executive is facing jail time for obstructing the investigation that ended up with the bank paying more than $3 billion in fines for opening fake accounts.
You may also remember that after the last round of bank bailouts in 2008, the FED moved to make the banks act like banks and not trading houses, which eventually led Morgan Stanley to try and sell their oil trading business to the Russians, only to end up selling it to a firm headed up by a former Enron trader when the Russian deal was nixed by regulators. You can’t make this stuff up.
Click here to download a PDF of today's TACenergy Market Talk.
Refined Products Are Moving Lower For A 2nd Day After Coming Under Heavy Selling Pressure In Wednesday’s Session
Refined products are moving lower for a 2nd day after coming under heavy selling pressure in Wednesday’s session. Rapidly increasing refinery runs and sluggish diesel demand both seemed to weigh heavily on product prices, while crude oil is still benefitting from the disruption of exports from Iraq. Prices remain range-bound, so expect more choppy back and forth action in the weeks ahead.
US oil inventories saw a large decline last week, despite another 13-million barrels of oil being found in the weekly adjustment figure, as imports dropped to a 2-year low, and refinery runs cranked up in most regions as many facilities return from spring maintenance.
The refining utilization percentage jumped to its highest level of the year but remains overstated since the new 250,000 barrels/day of output from Exxon’s Beaumont facility still isn’t being counted in the official capacity figures. If you’re shocked that the government report could have such a glaring omission, then you haven’t been paying attention to the Crude Adjustment figure this year, and the artificially inflated petroleum demand estimates that have come with it.
Speaking of which, we’re now just a couple of months away from WTI Midland crude oil being included in the Dated Brent index, and given the uncertainty in the US over what should be classified as oil vs condensate, expect some confusion once those barrels start being included in the international benchmark as well.
Diesel demand continues to hover near the lowest levels we’ve seen for the first quarter in the past 20+ years, dropping sharply again last week after 2 straight weeks of increases had some markets hoping that the worst was behind us. Now that we’re moving out of the heating season, we’ll soon get more clarity on how on road and industrial demand is holding up on its own in the weekly figures that have been heavily influenced by the winter that wasn’t across large parts of the country.
Speaking of which, the EIA offered another mea culpa of sorts Wednesday by comparing its October Winter Fuels outlook to the current reality, which shows a huge reduction in heating demand vs expectations just 6-months ago.
It’s not just domestic consumption of diesel that’s under pressure, exports have fallen below their 5-year average as buyers in South America are buying more Russian barrels, and European nations are getting more from new facilities in the Middle East.
Take a look at the spike in PADD 5 gasoline imports last week to get a feel for how the region may soon be forced to adjust to rapidly increasing refining capacity in Asia, while domestic facilities come under pressure.
Crude Oil Prices Are Trying To Lead Another Rally In Energy Futures This Morning
Crude oil prices are trying to lead another rally in energy futures this morning, while ULSD prices are resisting the pull higher. Stocks are pointed higher in the early going as no news is seen as good news in the banking crisis.
WTI prices have rallied by $10/barrel in the past 7 trading days, even with a $5 pullback last Thursday and Friday. The recovery puts WTI back in the top half of its March trading range but there’s still another $7 to go before the highs of the month are threatened.
Yesterday’s API report seems to be aiding the continued strength in crude, with a 6 million barrel inventory decline estimated by the industry group last week. That report also showed a decline of 5.9 million barrels of gasoline which is consistent with the spring pattern of drawdowns as we move through the RVP transition, while distillates saw a build of 550k barrels. The DOE’s weekly report is due out at its normal time this morning.
Diesel prices seems to be reacting both to the small build in inventories – which is yet another data point of the weak demand so far this year for distillates – and on the back of crumbling natural gas prices that settled at their lowest levels in 2.5 years yesterday and fell below $2/million BTU this morning.
While diesel futures are soft, rack markets across the Southwestern US remain unusually tight, with spreads vs spot markets approaching $1/gallon in several cases as local refiners go through maintenance and pipeline capacity for resupply remains limited. The tightest supply in the region however remains the Phoenix CBG boutique gasoline grade which is going for $1.20/gallon over spots as several of the few refineries that can make that product are having to perform maintenance at the same time.
French refinery strikes continue for a 4th week and are estimated to be keeping close to 1 million barrels/day of fuel production offline, which is roughly 90% of French capacity and almost 1% of total global capacity. That disruption is having numerous ripple effects on crude oil markets in the Atlantic basin, while the impact on refined product supplies and prices remains much more contained than it was when this happened just 5 months ago.
Click here to download a PDF of today's TACenergy Market Talk.