Energy Market Updates

The large Crude inventory build yesterday overshadowed the decline in finished products and took the floor out of pricing yesterday.  Crude increased over 12 million barrels, largely due to the limited refinery activity in the past weeks.  Refineries are running at about 80% capacity due to maintenance, cold, and limited demand forecasts.  Fundamentals have pushed aside the risk premium in the last few days.  The Global conflict premium had shot diesel pricing up almost $.40 since the first of the year.  With distillate demand down about 10% compared to the same time last year, it makes refiners walk a tightrope on producing even with margins very high on distillates, in the $41 per barrel range currently.

Honesty and Integrity in all Dealings is not just a tag line for Dennis K. Burke, Inc, it is one of our Core Values as an Organization.  In a world that has become more and more competitive and polarizing, it is good to know that a true business relationships can still exist.  We strive to be transparent to our many Customers and non-Customer alike.  One of my weekly calls is from someone who is not even a Customer, but he is just simply looking for a new perspective or answer on a problem.    Which ties into another Core Value, a Commitment to Customer Service Excellence.  In my mind, a Customer is not defined as someone with an open account at DKB, it is more of anyone that I can assist or help out, in this often times crazy business.  (many of you have received a note from me with an introduction to someone who you can help out) Partly the reason for these updates is letting you know what is happening, insight in to what may be coming, and keeping an open line of communication.

Coming off the Monday Holiday, prices surged higher Tuesday as OPEC+ heavyweights Russia and Saudi Arabia confirmed they would extend voluntary production cuts through the end of the year.  Fueling the rise from the Cpt. Obvious department, big banks publish reports to expect $107 Crude if cuts maintain.  Buy the rumor, sell the fact.  Diesel had a nice sell off going, but remember, one day doesn’t reverse the trend.  Wednesdays intraday action erased almost all of the gains only to settle down slightly.  While we still sit almost $1 higher in pricing than the beginning of the Summer, you would have to think better days are to come.  Current JUNE 24 Diesel future pricing is $.45 less than front month October 23. 

Starting off this week it appeared that we may have seen the top of the recent rally in the Commodity sector.  That changed Tuesday morning as the EIA released a guidance report that they expect US crude production to increase an additional 200,000 barrels per day based on….. yep, higher prices.  This fueled the indexes in a self-fulling prophecy sort of way and turned around what was a $.05 down day to a $.07 up day.  The buying carried over to Wednesday as the inventory report showed a solid increase in crude stocks with the products showing losses.  Key note on the crude gains is that it looks to be largely due to slashing exports.  Something we have been saying might be a prudent step for a while now.  Distillates are now $.80 higher than July 1^st, erasing the steady 8 month decline that we have enjoyed.  Sentiment is fixated on Saudi led OPEC cuts and appears to shrug off any fundamental data.  It’s almost like mob mentality really.  Crude builds, soft demand, economic uncertainty, should all push prices lower. 

Crude slipped past the looming $60/bbl benchmark this afternoon, as pricing surged over $2/bbl (~4%). Prices have been largely supported the past several weeks by looming Iranian-US tensions and price level support from the continuing OPEC+ production cuts.

Oil was down today as the market weighed out OPEC speculation on one hand, and a drop in US Crude inventories on the other.

Today, the NYMEX continued it's winning streak - At the end of the day, we settled up across the board yet again, with Crude settling out at $48.75/bbl (+1.7%), ULSD climbed +.0268 to $1.5953 and RBOB edged up +.02111 to $1.6173. 

Today saw oil prices have the biggest one day rally of 2017 thus far, with WTI Crude surging up 3.3% ($1.55) to settle out at $47.89/bbl. Likewise, refined products surged, with ULSD jumping over 5 cents (+.0516) to 1.5685, and gasoline jumped +.0394 to settle at 1.5962.

Crude jumped on today’s inventory report after jumping up on the overnights last night as well. Post close yesterday, the API numbers were indicating significant draws and the EIA release backed that projection up.
The EIA report this morning indicated that Crude inventories dropped by 14.5 million barrels for last week, which is the biggest drop we’ve seen this millennium (since 1999).
Analysts are partly blaming the effects of Hermine on the Gulf Coast delaying production and explaining the draw down in stocks.  
Gasoline stocks also dropped, by 4.5 million barrels, and also unexpectedly.
Today closed out up across the board, with diesel up .0557 to $1.4822, Gas up .0701 to $1.4165 and Crude closing out at $47.62. (significantly up from yesterday’s Crude settle of $45.50)
An interesting aside on gasoline’s jump today was that the lowest Labor Day retail gasoline prices in 12 years were seen this past weekend, and if you jump online there are literally dozens of articles projecting that the post summer driving season price levels for gasoline will drop below $2 per gallon. It’s more likely than not that these articles are correct versus today’s inventory and price rebound. Nothing has changed fundamentally with either Crude or gasoline in terms of long term supply and demand outlooks (despite some new rumblings about Russia and Saudi Arabia, as usual).