Energy Futures Starting 2nd Quarter On Strong Note
Energy futures are starting the 2nd quarter of 2019 on a strong note, aided by reports that OPEC production dropped to its lowest level in more than 3 years last month, and by US equity markets that are pointing to a strong open on the back of positive news from China. WTI is leading the charge, touching a fresh 4.5 month high at $60.92 overnight, while Brent and refined products are still holding below the highs set last week.
While global concerns on oil supply and economic activity may continue to dominate the headlines and price action in the new quarter, a pair of legal battles may have longer term impacts on US oil supplies. Over the weekend, a federal judge ruled the President’s order to open drilling in the Arctic was unlawful, following a new order issued to allow for the Keystone XL to be built after more than a decade of wrangling.
Saudi Aramco published its income for the first time ahead of a bond offering, listing net income last year north of $111 billion, and free cash flow of $86 Billion, dwarfing the world’s largest publicly held oil companies, although trailing many on a per-barrel basis given its heavy tax burden.
Baker Hughes reported a 6th straight week of declines for oil rigs in the US, making Q1 2019 the largest quarterly decline in 3 years for the rig count. Texas continues to lead the move lower, marking a 12th consecutive week of declines for the state’s rig count. The Dallas FED published its quarterly energy activity survey last week and noted that activity ticked up slightly in Q1, after dropping sharply during the price plunge of Q4, 2018. West Texas is rapidly transitioning from a shortage to an excess of pipeline takeaway capacity for oil, which combined with the recent price recovery could be enough to see the trend of lower rig counts come to an end in the next few weeks.
Money managers continued to jump on the spring break bandwagon, adding to net-long positions in WTI, Brent and RBOB contracts last week, while ULSD dropped to a net short position for the large speculative category of trader. Perhaps most notable in the changes was that RBOB net length broke above its 5-year seasonal range as of the data reported Friday, which is compiled as of last Tuesday, which means a large number of energy speculators got to experience the spring gasoline rollercoaster with a 15 cent drop in RBOB prices over the next 2 days. The funds’ reaction to those price swings in this week’s report may give a good indication of the staying power of this year’s spring rally as retail prices in several parts of the country approach or surpass $3/gallon.
Latest Posts
Gasoline Futures Are Leading The Way Lower This Morning
The Sell-Off Continues In Energy Markets, RBOB Gasoline Futures Are Now Down Nearly 13 Cents In The Past Two Days
Week 15 - US DOE Inventory Recap
Prices To Lease Space On Colonial’s Main Gasoline Line Continue To Rally This Week
Social Media
News & Views
View All
Gasoline Futures Are Leading The Way Lower This Morning
It was a volatile night for markets around the world as Israel reportedly launched a direct strike against Iran. Many global markets, from equities to currencies to commodities saw big swings as traders initially braced for the worst, then reversed course rapidly once Iran indicated that it was not planning to retaliate. Refined products spiked following the initial reports, with ULSD futures up 11 cents and RBOB up 7 at their highest, only to reverse to losses this morning. Equities saw similar moves in reverse overnight as a flight to safety trade soon gave way to a sigh of relief recovery.
Gasoline futures are leading the way lower this morning, adding to the argument that we may have seen the spring peak in prices a week ago, unless some actual disruption pops up in the coming weeks. The longer term up-trend is still intact and sets a near-term target to the downside roughly 9 cents below current values. ULSD meanwhile is just a nickel away from setting new lows for the year, which would open up a technical trap door for prices to slide another 30 cents as we move towards summer.
A Reuters report this morning suggests that the EPA is ready to announce another temporary waiver of smog-prevention rules that will allow E15 sales this summer as political winds continue to prove stronger than any legitimate environmental agenda. RIN prices had stabilized around 45 cents/RIN for D4 and D6 credits this week and are already trading a penny lower following this report.
Delek’s Big Spring refinery reported maintenance on an FCC unit that would require 3 days of work. That facility, along with several others across TX, have had numerous issues ever since the deep freeze events in 2021 and 2024 did widespread damage. Meanwhile, overnight storms across the Midwest caused at least one terminal to be knocked offline in the St. Louis area, but so far no refinery upsets have been reported.
Meanwhile, in Russia: Refiners are apparently installing anti-drone nets to protect their facilities since apparently their sling shots stopped working.
Click here to download a PDF of today's TACenergy Market Talk.
The Sell-Off Continues In Energy Markets, RBOB Gasoline Futures Are Now Down Nearly 13 Cents In The Past Two Days
The sell-off continues in energy markets. RBOB gasoline futures are now down nearly 13 cents in the past two days, and have fallen 16 cents from a week ago, leading to questions about whether or not we’ve seen the seasonal peak in gasoline prices. ULSD futures are also coming under heavy selling pressure, dropping 15 cents so far this week and are trading at their lowest level since January 3rd.
The drop on the weekly chart certainly takes away the upside momentum for gasoline that still favored a run at the $3 mark just a few days ago, but the longer term up-trend that helped propel a 90-cent increase since mid-December is still intact as long as prices stay above the $2.60 mark for the next week. If diesel prices break below $2.50 there’s a strong possibility that we see another 30 cent price drop in the next couple of weeks.
An unwind of long positions after Iran’s attack on Israel was swatted out of the sky without further escalation (so far anyway) and reports that Russia is resuming refinery runs, both seeming to be contributing factors to the sharp pullback in prices.
Along with the uncertainty about where the next attacks may or may not occur, and if they will have any meaningful impact on supply, come no shortage of rumors about potential SPR releases or how OPEC might respond to the crisis. The only thing that’s certain at this point, is that there’s much more spare capacity for both oil production and refining now than there was 2 years ago, which seems to be helping keep a lid on prices despite so much tension.
In addition, for those that remember the chaos in oil markets 50 years ago sparked by similar events in and around Israel, read this note from the NY Times on why things are different this time around.
The DOE’s weekly status report was largely ignored in the midst of the big sell-off Wednesday, with few noteworthy items in the report.
Diesel demand did see a strong recovery from last week’s throwaway figure that proves the vulnerability of the weekly estimates, particularly the week after a holiday, but that did nothing to slow the sell-off in ULSD futures.
Perhaps the biggest next of the week was that the agency made its seasonal changes to nameplate refining capacity as facilities emerged from their spring maintenance.
PADD 2 saw an increase of 36mb/day, and PADD 3 increased by 72mb/day, both of which set new records for regional capacity. PADD 5 meanwhile continued its slow-motion decline, losing another 30mb/day of capacity as California’s war of attrition against the industry continues. It’s worth noting that given the glacial pace of EIA reporting on the topic, we’re unlikely to see the impact of Rodeo’s conversion in the official numbers until next year.
Speaking of which, if you believe the PADD 5 diesel chart below that suggests the region is running out of the fuel, when in fact there’s an excess in most local markets, you haven’t been paying attention. Gasoline inventories on the West Coast however do appear consistent with reality as less refining output and a lack of resupply options both continue to create headaches for suppliers.