Info Overflow Leaves Energy Futures Mixed

It’s a mixed bag for energy markets returning from Monday’s partial holiday as traders digest a data deluge from Davos, China, and OPEC, while the recent recovery rally faces its first significant technical resistance. Small losses in yesterday’s partial session have turned to small gains this morning for RBOB futures, while distillates have gone the opposite direction, turning yesterday’s small gains into minor losses this morning. 

The world’s largest oil buyer has a major problem with demographics that is signaling the end of decades of rapid economic growth, even as near term projections show consumption rebounding as the country reopens its economy. 

China’s refinery runs declined for the first time since 2001 last year, despite new facilities that added more than 500,000 barrels/day of production capacity, as the country struggled with how to deal with slumping domestic demand due to its COVID policies, while the rest of the world was clamoring for its exports. A surge in export activity to end the year and higher export quotas for 2023 have led to optimism that European fuel buyers will be able to make ends meet, although the lack of clarity and internal conflict within the Chinese regime makes it very challenging to project. 

Meanwhile, 5 people were killed and 30 injured after an explosion and fire at a Chinese oil refinery and petrochemical plant Sunday. While the loss in output may not move the needle as the facility was relatively small and not running at capacity anyway, it may provide the state another reason to tighten the screws on its independent facilities in favor of the government owned plants as it did last year. OPEC’s monthly oil market report revised its economic growth forecasts higher as several key economies fared better in 2022 than previously thought. Despite the better than expected figures for last year, the report left its outlook for 2023 unchanged due to numerous uncertainties surrounding monetary policy, COVID, and geopolitical tensions. Sticking with the theme of the day, the report also highlighted how Chinese export quotas may put downward pressure on product prices and refining margins. OPEC’s oil production increased by 91mb/day during December due to increases from Nigeria, Libya and Venezuela who aren’t bound by the production cut agreements given their wild-card government status.

Exxon is reportedly 2 weeks away from starting up its new 250,000 barrel/day crude unit at its Beaumont refinery, which will make that facility the 2nd largest in the country and top 10 in the world. While that new capacity will temporarily end a string of reductions in the US that started in 2019 and took roughly 7% of capacity off the table, the increase won’t last long as Houston Refining is still scheduled to shutter its facility later in the year and offset the Beaumont gains.

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