Energy Market Updates

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Supply, Demand & Staffing Put Question Marks on Current Rally Strength

Fuel prices sit about $.30 higher today than the beginning of the month as we broke out of the comfortable range in MAY through JUNE.  The three week rally can mainly be tied to production cuts, unpredictable inventory reports and mostly an optimistic view on the overall health of the US economy.  The bright side is we are over $1.00 lower than this time last year.  The question remains, does this rally have any legs? 

In terms of production, it is a fine line where re-emerging producers such as Venezuela, Iran, and US shale jump in heavy to take advantage of the higher market prices.  And ultimately, do those barrels have any affect on the overall supply picture and will that additional product push prices down?  Personally, I think the real key lies in the demand picture.  Diesel consumption is down roughly 3% year over year, may not seem like a lot but it is noticeable.  Gasoline is actually up versus last year, but again, that may still be lingering COVID related adjustments. 

With major National freight carriers all seeing  volumes down significantly this year, and one facing bankruptcy, it seems likely that diesel demand will remain soft through the end of the year.  We could, possibly retrace $.30 to $.50 in value should this maintain.  (special note: SPR Crude is still about 150mbls lower than last year) 

We are in this odd place as some businesses are flat out and others are maintaining.  How much of that is staffing related is tough to tell.  Being able to pivot once again may be crucial in the coming months.  Having a supplier with product, trucks, staff, and multiple delivery options to meet all your fuel and lubricant needs should be a top priority as we move into the second half of the year.  As always, feel free to reach out to discuss your specific operation. (You can reach out by phone, or schedule a call at a good time for you using this link:  Schedule a Call )

july 20 ULSD

 

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Markets Shrug off Coup Attempt & Get Back to Fundamentals

Fuel markets appeared to have shrugged off what could have been a historic week, should an actual Coup attempt in Russia transpired.  The current market mood appears to be focused more on actual supply and demand factors.  Crude inventories showed a massive 9m barrel loss this week while finished gas and diesel were relatively flat.  Gasoline futures soared yesterday taking ULSD  along for the ride, although not as much. 

Again, we are still in this range since early May as demand figures temper any long run increases.  While diesel demand is at a 6 month low and is over 7% less than last year, gasoline is up almost 4%.  Some attribute the gasoline rise to more people returning to the office regularly.  As we say often, diesel usage in the U.S. is the barometer of the economy and if that is soft, so goes the economy.  That, along with hints of another FED rate hike are keeping future pricing in check. 

The price backwardation that affected distillates for so long has found its way into the Gasoline market, far more than the normal product seasonality we typically see.  Again, this limits most from bringing in gasoline to storage as the hedge costs are not justifiable and outages can occur.  The right size tank, and a strong supplier relationship will always get you through.  Look for the day to day swings to continue as we head into the summer driving season.

6.29.23 ulsd

 

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Prices Rally as EIA Reports Say Lower Inventory, Higher Demand

By noon trading today Crude was up almost 5%, and on the refined products side, ULSD was up 7 cents and Gas up almost 6 (+.0586) and the market looked like we could see the highest close since mid-March. 

So what's going on?

EIA Reports! The EIA demand outlook was increased signaling the agency sees a continuing growth in demand for petroleum products going forward. On top of that, the EIA Inventory reports this morning showed a draw of 5.9mmb on Crude for the week ending 4/9. This is actually pretty close to the number analysts had predicted on Crude - however, analysts had predicted builds on gasoline of 5.65mmb, and that's what kept prices in range Tuesday. The actual reporting from the EIA showed a build of only 300K, obviously a far cry from the priced-in 5.65mmb, and that took the brakes off of holding prices back.

So essentially, the EIA is predicting more demand and reporting dropped inventories at the same time, and that's pushing prices north. 

Other bullish factors behind prices moving up include substantial growth in Chinese oil usage (imports increased a reported 21% last month) and continuing positive economic indicators in US.

On the other side of the equation however, we are seeing a continually slow vaccine rollout (particularly in Europe) while we simultaneously see explosions in cases in some areas (ie Brazil). Yesterday, we also saw an announcement that the United States is "pausing" administration of the Johnson & Johnson one-shot vaccine for COVID-19 after reports of potentially fatal blood clots in a small number of recipients. The pause reportedly will be for "weeks or even days not months" according to officials, but the major concern is a PR one, that the pause will cause hesitation in getting vaccinated among those who have not yet, which could hypothetically impact both case numbers, and how quickly the country is able to be fully back open for business. 

So vaccination concerns and case numbers are basically the black rain clouds over a potentially stronger, longer rally on prices, and it's anyone's guess which side of the equation wins out over the next few weeks. 

Stay tuned!

 

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OPEC+ Production Reversal signals Economic Optimism, Props Prices

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Last month, the OPEC+ decision to stay the course on previously announced production cuts pushed the market up. Yesterday, the OPEC+ decision to reverse course and bring more supply online over the next 3 months (May, June, July) resulted in....surprise! The market going up! 

The announcement on the OPEC+ production level change came initially around noon - normally we would see an immediate drop on the screens in the event of a production increase announcement.

So why not yesterday?

It seems the sentiment is that the sudden reversal is a strong vote of confidence for global economic recovery and a resulting surge in demand, and that confidence, along with some hopeful signs of demand upticks (resuming air travel, refinery utilization increases, import resurgence) is supporting higher price levels. 

This morning, the first jobs report published under new Labor Secretary (Boston's own!) Marty Walsh showed a surprising uptick in jobs. Non farm payrolls shot up 916,000 jobs (analysts had predicted 675K), and the unemployment rate dropped to 6% (last April the unemployment rate was 14.7%).

The markets were closed today in observance of Good Friday so we were not able to see the reports full impact, outside of some upticks in bonds, but it would seem to support the optimistic stance taken by OPEC+ regarding economic recovery. Major economic indicators are still up in the air however, and while countries are making progress with vaccinations and easing of restrictions, we are certainly not "past" COVID as of yet, so optimism should likely be tempered with some caution. 

In terms of the numbers, yesterday Crude closed out at $61.45/bbl - surprisingly tight to the close on the last day of trading in February despite March's volatility (last day of Feb trading Crude settled $61.50). April 1 close for ULSD on front month trading was $1.8316 (+.0618) and gasoline was $2.0223 (+.0626). 

Stay Tuned! 

 

 

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Markets Rebound After Thursday's Slide

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Markets rebounded somewhat today from yesterdays massive slide.

Brent & WTI both closed up 2.7% today (to $62.07 & $55.40, respectively) after each saw the greatest single day slide in over three years on Thursday. 

At the close ULSD was up .0373 to $1.8902, RBOB up .0316 to $1.7815 and WTI at $55.40. 

So what's going on? 

Analysts are accounting today's rally to the idea that yesterday's sell-off was probably more extreme than was warranted, so some of the rebound is simply a re-balancing of sorts.

The other assumption is that the Trade War concerns brought on by yesterday's Presidential tweets and the potential impact of looming tariffs on the economy may have been an overreaction. Time will tell on that one. 

Overall it's a little hard to tell whether we are returning to range bound numbers or waiting for another shoe to drop, as a lot of the usual "leading indicators" are mixed.

The US economy expanded 2.1% in the second quarter, which beat analyst predictions - but also fell short of Q1 numbers.The jobs number was up - but not as strong as was hoped, and the unemployment rate is low - but unchanged from prior month. The economy expanded - but manufacturing activity and construction spending fell.

Oil production levels in the US are expected to surpass records, while OPEC cuts production to bolster prices. 

Each of the factors we usually consider is somewhat counterbalanced by another. 

It will be interesting to see how things begin to shake out.

Stay tuned!

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Standing Headline: Fed Talks,Chinese Economic Data Pummel Stocks,Crude

Man grasping his head looking at computer screens

WTI dropped 2.8% today to close out at $44.43 a barrel, while Brent closed out down 2.5% . On the refined products side of the NYMEX, ULSD and Gas both took a pummeling as well, with both down over 4 on the day. To be exact, ULSD closed out down (-.0453) to 1.4772 and RBOB closed down (-.0471) to 1.3488.

So whats going on?

For one, the news from China today was that industrial companies there have seen profits plummet at a faster level than they have in four years, resparking speculation that China's economy is really struggling a lot more than everyone has been assuming. As previously discussed, Chinese economic data is such a huge indicator because they are a top commodities consumer, and strong economic data from China is basically what traders and analysts are "hanging their hat on" as a potential for growing demand to stave off the price crushing effects of the oil glut.

The IMF Managing Director also announced today that although the economy was still recovering from the recession, the pace had decelerated, and the 3.3-3.8 GDP goals for 2015 & 2016 were now "unrealistic". This in combo with the bleak Chinese data pushed crude down quickly both overseas and domestically. 

In related news, Shell announced today that they will be pulling out of Arctic drilling exploration in Alaska. This is primarily a result of the sustained drop in oil prices, and follows a growing trend industry-wide. Over half of American rigs have been decomissioned, and investment into new oil sands projects and new gulf drilling projects has dropped substantially.

Simply put, theres just too much oil out there now to invest huge sums of money into procuring even more of it.  

Wall Street took a beating today as well on Chinese data, the IMF remarks, and continued rumor milling over the timing of the Fed Rate hike. The president of the NY Fed suggested it could happen as soon as October, where others have speculated December was the likely target date. So once again, Fed talks and the resultant speculation, combined with some more "surprise" bleak economic data hammered stocks today - which is starting to seem like a standing headline at this point. 

Stay Tuned!

 

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Inventory Shocker Reverses the RBOB Slide

Line charts depicting the stock market scattered on a table

A continuing poor outlook on gasoline demand and (presumably) increasing stockpiles continued to push RBOB futures down this week -  that is until it took an abrupt about face today on a shocker of an inventory report. Analysts were predicting a build of around 300,000 barrels but - surprise! - the report showed a draw of over 4 MILLION! 

ULSD settled up as well  - analysts had predicted a 900,000 barrel build and instead we saw a 1.8 million barrel drop. 

If you were stuck to the screen today, we saw NYMEX react to the panic, with gas going up over 5 cents and ULSD up over 3 breifly, before both backed down some. At the close, gas settled up .0242 to 2.7397, and ULSD closed out up .0292 to 2.8761. 

Prior to today prices were looking to go the right way - Monday saw CRUDE futures hit a 6 month low. The month of July saw WTI fall by over 6%, which is the biggest drop we have seen in more than 2 years. Prices had hit a high of 104.59 on fears over Russian supply (export) disruption after the MH17 flight crashed in Ukraine, but have backed off since those fears haven’t come to fruition. 

Earlier this week additional seemingly positive economic indicators also pushed the dollar up, which often causes a drawback in commodity pricing - which we saw happening until today's inventory numbers were released. 

Reports indicated strong growth in the manufacturing  and service sectors, with the Commerce Department pegging manufactured goods orders and durable goods orders both up over 1%.  All of these are good signs (in theory at least) that the economy is continuing to strengthen, particularly given that the positive numbers surpassed projected expectations.  

Hopefully given the generally positive economic data for the week, traders adjust to the inventory shock quickly and we'll see a correction over the next few days. 

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