Energy Prices Fight To Find Bottom
There’s been a battle of conflicting headlines this week as energy prices fight to find a bottom and extend a recovery rally for a 2nd day after reaching 4-month lows on Wednesday.
Russia and Saudi Arabia seem to be having a difficult time agreeing on what to do with their output cut agreement. The Saudis seem to think a deal to extend the cuts will be made (which is getting credit for the bounce in prices) while others are saying Russia intends to increase its output once the current deal ends in June.
Speaking of conflicting stories, energy and equity markets got a sharp afternoon bounce Thursday on reports that the US would not be placing new tariffs on Mexican goods, only to give up some of those gains when the White House was reported to still be moving forward with the new taxes.
In addition to the bounce in futures, Gulf coast basis values were also finding a bid Thursday after Motiva reported an upset on an FCCU unit at its Port Arthur plant (the country’s largest refinery) a day after Exxon reported issues at its Baytown facility. It’s still not clear exactly what operational impacts those two events will have – or what part the storms in the region played in causing them – but to have 2 of the largest facilities have issues in 2 days should keep traders on edge for a while.
Bad news is good news? The May non-farm payroll report showed only 75,000 jobs added in the US (the 2nd worst monthly gain in the past 2 years) along with sharp reductions in both the March and April estimates. Treasury yield rates dipped immediately after the report as it seems the weak economic news gives the FED another reason to cut interest rates. The question is whether that expectation for lower rates will boost equity & energy prices as it has in years past, or if this bad news will just be seen as another sign of an economy on the verge of recession sparking another flight to safety by investors.
We finally know more of the story with the 4 oil tankers sabotaged near a UAE port last month. Preliminary findings are that divers placed mines on the hulls of each ship. Both the US and Saudi Arabia are publicly blaming Iran for the attacks, while the other nations in the region aren’t placing official blame – apparently in hopes of reducing tensions in the world’s most valuable waterway.
A new note from the EIA Thursday detailed how rapidly horizontal well production has surpassed traditional vertical well output.
It’s no secret that Texas produces more oil than any other state in the US, but did you know it’s also the highest wind-electricity producer as well? According to a new EIA report, the state has produced more than 25% of the country’s total wind-generated electricity over the past several years.
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Energy Markets Rally Again Thursday After A Choppy Wednesday Session
Energy markets are trying to rally again Thursday after a choppy Wednesday session. RBOB gasoline futures are leading the push higher, on pace for a 3rd consecutive day of gains after finding a temporary floor Tuesday and have added 12 cents from those lows.
Equity markets are pointing sharply lower after a weak Q1 GDP estimate which seems to have contributed to a pullback in product prices over the past few minutes, but don’t be surprised if the “bad news is good news” low interest rate junkies start jumping in later on.
The DOE’s weekly report showed sluggish demand for gasoline and diesel, but inventory levels in most markets continue to follow their typical seasonal trends. Refinery runs held fairly steady last week with crude inputs down slightly but total gross throughputs up slightly as most facilities are now back online from a busy spring maintenance season and geared up for peak demand this summer.
Propane and propylene exports spiked to a record high north of 2.3 million barrels/day last week, which demonstrates both the US’s growing influence on global product markets, and the steady shift towards “other” products besides traditional gasoline and diesel in the level of importance for refiners.
The EIA acknowledged this morning that its weak diesel consumption estimates reflected the switch to Renewable Diesel on the West Coast, although they did not provide any timeline for when that data will be included in the weekly survey. The agency acknowledged that more than 4% of the total US consumption is now a combination of RD and Biodiesel, and that number is expected to continue to grow this year. This morning’s note also suggested that weak manufacturing activity was to blame for the sluggish diesel demand across the US, while other reports suggest the freight recession continued through Q1 of this year, which is also contributing to the big shift from tight diesel markets to oversupplied in several regions.
Valero kicked off the Q1 earnings releases for refiners with solid net income of $1.2 billion that’s a far cry from the spectacular earnings north of $3 billion in the first quarter of 2023. The refining sector made $1.7 billion, down from $4.1 billion last year. That is a pattern that should be expected from other refiners as well as the industry returns to a more normal market after 2 unbelievable years. You wouldn’t guess it by looking at stock prices for refiners though, as they continue to trade near record highs despite the more modest earnings.
Another pattern we’re likely to see continue with other refiners is that Renewable earnings were down, despite a big increase in production as lower subsidies like RINs and LCFS credit values sting producers that rely on those to compete with traditional products. Valero’s SAF conversion project at its Diamond Green joint venture is progressing ahead of schedule and will give the company optionality to flip between RD and SAF depending on how the economics of those two products shakes out this year. Valero also shows part of why refiners continue to disappear in California, with operating expenses for its West Coast segment nearly 2X that of the other regions it operates in.
Week 16 - US DOE Inventory Recap
Energy Markets Trading Quietly In The Red As Ethanol Prices Rally To Five-Month High
Energy markets are trading quietly in the red to start Wednesday’s session after a healthy bounce Tuesday afternoon suggested the Israel-Iran-linked liquidation had finally run its course.
There are reports of more Ukrainian strikes on Russian energy assets overnight, but the sources are sketchy so far, and the market doesn’t seem to be reacting as if this is legitimate news.
Ethanol prices have rallied to a 5-month high this week as corn and other grain prices have rallied after the latest crop progress update highlighted risks to farmers this year, lower grain export expectations from Ukraine, and the approval of E15 blends this summer despite the fact it pollutes more. The rally in grain and renewables prices has also helped RIN values find a bid after it looked like they were about to test their 4-year lows last week.
The API reported small changes in refined product inventories last week, with gasoline stocks down about 600,000, while distillates were up 724,000. Crude oil inventories increased by 3.2 million barrels according to the industry-group estimates. The DOE’s weekly report is due out at its normal time this morning.
Total reported another upset at its Port Arthur refinery that’s been a frequent flier on the TCEQ alerts since the January deep freeze knocked it offline and damaged multiple operating units. This latest upset seems minor as the un-named unit impacted was returned to normal operations in under an hour. Gulf Coast basis markets have shrugged off most reports of refinery upsets this year as the region remains well supplied, and it’s unlikely we’ll see any impact from this news.
California conversely reacted in a big way to reports of an upset at Chevron’s El Segundo refinery outside of LA, with CARBOB basis values jumping by more than a dime. Energy News Today continued to show its value by reporting the upset before the flaring notice was even reported to area regulators, proving once again it’s ahead of the curve on refinery-related events. Another industry news outlet meanwhile struggled just to remember where the country’s largest diesel seller is located.
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