Rally Following Reports Of COVID Treatment Option
Refined products are rallying to start the week, wiping out Friday’s losses as a pair of Tropical Storms head for the heart of U.S. refining operations, and U.S. stock indices are set to rally following reports of a new COVID treatment option.
Good news, Hurricane Marco has weakened back to tropical storm status prior to making landfall on the Louisiana coast. This means we will not see a record set this week with two hurricanes in the Gulf of Mexico at the same time. Bad news is that Marco is turning along the coast instead of moving inland, which should mean heavy rains for the next two to three days to saturate the ground in refinery country just in time for Laura to show up. Laura is expected to be around a Category 2 storm when it hits land late Wednesday or early Thursday, with all of the refineries from Houston, Galveston, Beaumont, Port Arthur and Lake Charles still in the forecast cone.
Ports of New Orleans and Baton Rouge have been closed as the storms approach, and the Texas ports along the eastern part of the coast are expected to follow suit in the next couple of days. Corpus Christi’s port, meanwhile, is facing its own challenges after a dredging vessel apparently hit a propane pipeline, causing an explosion and fire that killed four people. Refinery operations in the area do not seem to be impacted, but it’s yet another disruption to import/export activities this week that are likely to cause challenges for plants trying to alleviate their excess inventory.
Baker Hughes reported an increase of 11 oil rigs drilling last week, the largest weekly gain since January, and only the second weekly increase since March. The Permian basin accounted for 10 of the added rigs, while the Eagle Ford and Williston (Bakken) plays continued to decline. Bulls will see this as confirmation that demand is returning, which is supported by some signs of diesel consumption ticking higher across West Texas, while bears will suggest the increase was driven by producers forced to drill to avoid losing their leases.
Money managers are starting to act modestly bullish for refined products, but continue to be neutral on crude oil. RBOB net length held by the large speculative trader category rose to the highest level since March, which is a counter-seasonal bet on higher gasoline prices. ULSD meanwhile saw its net position held by money managers turn from short to long for the first time since January. Both WTI and Brent saw slight declines in their net length, with the ongoing lack of interest being more of a story than the weekly change in positions.
Click here to download a PDF of today's TACenergy Market Talk.
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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.