Energy Markets Struggle to Find Direction, OPEC Holds Forecasts Steady

Energy prices are limping into the weekend with small losses for products and small gains for crude in the early going. The mixed action in the back half of the week suggests a market that’s struggling to find direction after a big recovery bounce, which could lead to an extended period of choppy sideways trading until a new trend is formed.

OPEC’s monthly oil market report held forecasts steady for global economic activity and oil demand for the balance of the year as increasing activity in China and India are expected to effectively counter slowdowns in the US and Europe. The cartel’s oil output dropped by 191mb/day as losses in Iraq and Nigeria offset gains in Saudi Arabia and Angola.

The report highlighted how refining margins have continued to slide over the past month, and how increasing refinery rates are limiting US diesel export options, and weighing further on those margins, and contributing to the collapse in shipping rates. Asian refinery margins are also sliding below break-even levels in some cases, which could force run cuts, or closures of some facilities now that so much new capacity has come online in the region. 

The crack spread chart below shows that Gulf Coast refining margins are still holding well above break-even levels, but are a very far cry from the record setting levels we saw this time last year when the world simply could not find enough diesel fuel. A Reuters note this morning suggests that OPEC’s output cuts will create a tight market for high sulfur crude grades, which will continue adding to the downward pressure for refiner margins.

The Dallas FED published a broad look at the Texas economy Thursday, which offered more bullet points of slowing economic activity, even though the state continues to outpace the national averages. The Oil and Gas industry continues to add jobs however, despite the stagnation in rig counts this year. 

Today’s interesting read:  How the recent rash of refinery attacks sets the stage for Ukraine’s long-awaited counter-offensive against Russian held territory.

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