WTI Settled Lower For 10th Straight Session
WTI settled lower for a 10th straight session on Friday, marking the first time in the 35 year history of the contract that’s happened. That streak appears to be coming to an end this morning after Saudi Arabia put its foot down, deciding it would take steps to rebalance the suddenly-oversupplied oil market, sending prices up more than 1% overnight.
Although OPEC did not officially make any changes to its policy during meetings this weekend, they did set the stage for a production cut at their next meeting in early December. While Russia warned the cartel not to make any “hasty” decisions, Saudi Arabia wasted no time announcing that it would unilaterally reduce output by around 500,000 barrels/day in December now that waivers have been granted that will allow more Iranian oil to reach the market.
Baker Hughes reported an increase of 12 drilling rigs in the US last week, the largest weekly increase in almost 6 months, which brings the total count to its highest since March of 2015. Unlike what we’ve seen most of the past year, Texas did not account for the majority of the increase last week. The Lone-Star State actually saw a decrease of 1 rig, while the gains were spread among Alaska, Colorado, Louisiana, New Mexico, North Dakota and Oklahoma.
Money managers continue to bail out of their long positions (bets on higher prices) across the petroleum complex, with net-length held by the large speculative category of trader reaching the lowest levels in more than a year for most contracts last week. It will be interesting to see if the change in stance from the Saudi’s will encourage the funds to return to betting on higher oil prices, but with open interest in Brent reaching a 2 year low, it’s possible the big money is just taking its ball to another game.
There are only a few weeks left in the 2018 Atlantic hurricane season, but it appears we’ll have to deal with at least one more storm. The system is given a 90% chance of developing into a tropical system over the next 5 days as it heads towards Florida. At this point it looks like it will get pushed back out to sea, but we’ll need to watch it for a few more days to be sure there won’t be any impact to energy infrastructure.
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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.
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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.