Energy Markets Having Hard Time Making Up Mind
Energy markets are having a hard time making up their mind this week. A bullish DOE report had prices rallying Wednesday morning, only to see those gains wiped out in the afternoon, and then attempt another move higher overnight.
It’s hard to say what caused the sudden sell-off late in Wednesday’s session after the earlier DOE-induced strength. Perhaps the most notable item that could have contributed was that WTI rallied right into its 200 day moving average, only to stall out, making it look like a technical resistance layer the bulls weren’t able to overcome. Today’s rebound leaves the outlook even less clear, as technical indicators move into neutral territory and may leave us in an extended sideways pattern.
It is also possible that some traders sold into Wednesday’s rally as the large draw in crude oil stocks was driven primarily by a short-term storm-related issues rather than a long term fundamental change. Then again, demand figures rebounded nicely on the week, setting the stage for US Gasoline demand to make a run at all-time highs before the end of driving season.
The crude output chart below may have the most noteworthy impact from Hurricane Barry, causing the largest weekly drop in US crude production since the rash of hurricanes in 2017. With no reports of major damage from Barry however, we should see production bounce back to previous levels in next week’s report. It’s also worth noting that despite the largest weekly drop in nearly 2 years, total output was still 300mb/day above year-ago levels…which were a record high at the time.
PADD 3 refinery runs dropped by more than 400mb/day last week, which seems to be primarily due to the precautionary shut downs ahead of Barry. PADD 1 saw a 100mb/day increase last week, which helps to explain the relatively muted reaction to the PES shutdown over the past month.
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Week 17 - US DOE Inventory Recap
The Energy Complex Is Trading Modestly Lower So Far This Morning With WTI Crude Oil Futures Leading The Way
Energy Futures Are Drifting Quietly Higher This Morning
Refined Products Holding Close To Break Even While Oil Prices Are Losing Just Under 1%
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Week 17 - US DOE Inventory Recap
The Energy Complex Is Trading Modestly Lower So Far This Morning With WTI Crude Oil Futures Leading The Way
The energy complex is trading modestly lower so far this morning with WTI crude oil futures leading the way, exchanging hands $1.50 per barrel lower (-1.9%) than Tuesday’s settlement price. Gasoline and diesel futures are following suit, dropping .0390 and .0280 per gallon, respectively.
A surprise crude oil build (one that doesn’t include any changes to the SPR) as reported by the American Petroleum Institute late Tuesday is taking credit for the bearish trading seen this morning. The Institute estimated an increase in crude inventories of ~5 million barrels and drop in both refined product stocks of 1.5-2.2 million barrels for the week ending April 26. The Department of Energy’s official report is due out at it’s regular time (9:30 CDT) this morning.
The Senate Budget Committee is scheduled to hold a hearing at 9:00 AM EST this morning regarding a years-long probe into climate change messaging from big oil companies. Following a 3-year investigation, Senate and House Democrats released their final report yesterday alleging major oil companies have internally recognized the impacts of fossil fuels on the climate since as far back as the 1960s, while privately lobbying against climate legislation and publicly presenting a narrative that undermines a connection between the two. Whether this will have a tangible effect on policy or is just the latest announcement in an election-yeardeluge is yet to be seen.
Speaking of deluge, another drone attack was launched against Russian infrastructure earlier this morning, causing an explosion and subsequent fire at Rosneft’s Ryazan refinery. While likely a response to the five killed from Russian missile strikes in Odesa and Kharkiv, Kyiv has yet to officially claim responsibility for the attack that successfully struck state infrastructure just 130 miles from Moscow.
The crude oil bears are on a tear this past week, blowing past WTI’s 5 and 10 day moving averages on Monday and opening below it’s 50-day MA this morning. The $80 level is likely a key resistance level, below which the path is open for the American oil benchmark to drop to the $75 level in short order.
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Energy Futures Are Drifting Quietly Higher This Morning
Energy futures are drifting quietly higher this morning as a new round of hostage negotiations between Israel and Hamas seem to show relative promise. It seems the market is focusing on the prospect of cooler heads prevailing, rather than the pervasive rocket/drone exchanges, the latest of which took place over Israel’s northern border.
A warmer-than-expected winter depressed diesel demand and, likewise, distillate refinery margins, which has dropped to its lowest level since the beginning of 2022. The ULSD forward curve has shifted into contango (carry) over the past month as traders seek to store their diesel inventories and hope for a pickup in demand, domestic or otherwise.
The DOE announced it had continued rebuilding it’s Strategic Petroleum Reserve this month, noting the addition of 2.3 million barrels of crude so far in April. Depending on what the private sector reported for last week, Wednesday’s DOE report may put current national crude oil inventories (include those of the SPR) above the year’s previous levels, something we haven’t seen since April of 2022, two months after Ukraine war began.
The latest in the Dangote Refinery Saga: Credit stall-out, rising oil prices, and currency exchange.
Click here to download a PDF of today's TACenergy Market Talk.