Quiet Start For The Most Important Weeks Of The Year
It’s a quiet start for what could be one of the most important weeks of the year for financial markets. Energy prices are treading water as we await news on US-China trade talks, and the FOMC’s first interest rate cut in years. There were no new developments in the Strait of Hormuz over the weekend, letting energy traders sit back and watch how the other big stories will play out before making a move.
Baker Hughes reported a decline of 3 oil rigs drilling in the US last week, marking a 4th consecutive week of reduced drilling activity. The rig count has dropped in each month so far this year as producers continue to struggle with profitability, even as prices have rebounded. One interesting note in this week’s count: The Permian basin has more than half of the active drilling rigs in the country, and has been leading the declines for most of the year but actually increased by 3 rigs last week.
Money managers that jumped into long bets on energy prices ahead of Hurricane Barry two weeks ago look to have bailed out in the last commitment of traders reports. The large speculative category of trader saw large declines in almost all contracts last week, with European distillates the only one to see a net increase in net length held by money managers.
A Reuters article this morning highlights the challenging environment for ethanol producers in the US. The chart below shows that margins for producing ethanol from Corn have held in negative territory for most of the year. No surprise here, renewable fuel producers are blaming small refinery exemptions from the RFS for their woes, while refining groups suggest they’re not to blame.
It’s not just ethanol producers that are struggling. 2 more biodiesel plants have announced they will be shutting their doors this month, with the lack of a $1/gallon blenders credit making them unprofitable. The latest spending bill moving through congress does not include the tax extenders package that would reinstate that credit, along with the federal oil spill fee.
We are still more than a month away from the peak of hurricane season, but another system will need to be watched this week. Currently the NHC is only giving a 20% chance of development for a storm system that could heads towards Florida. Given that most terminals in Florida seem to be oversupplied with fuel currently, it seems less likely there will be much disruption even if this system does turn into a storm.
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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.
Click here to download a PDF of today's TACenergy Market Talk.
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.