Energy Market Updates

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EIA

July Rally Continues into August

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 1st, 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. 

As someone once told me “high prices are the cure for high prices” and it is hard to see this rally continue.  Backwardation remains with both gas and diesel, you could see end of month outages.  A supplier dedicated to the Commercial End User is definitely someone to have in your foxhole during these times.  Again, I always enjoy speaking specifically about your needs, please do not hesitate to schedule a quick talk below.

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ULSD Trading Range Tightens Up

While it might be hard to think about cold weather with temperatures in the 60s across the region, keep in mind that all too often, we still have an arctic blast come through late February into March.  Staying the course with a winterized fuel is critical to a smooth operation this time of year. 

A week ago we mentioned that when ULSD futures touched the 2.65 level we would likely see the market “re-evaluate” where we will go.  It has done exactly that, by trading in a modern day “tight” range of $.11 in the last several sessions.  A large crude build last week of 16.3 mbls put levels at almost a 2 year high, increases in gasoline  and a slight 1.3mbl loss in distillates are putting downward pressure on the entire market.  Strong retail sales, growing jobs, and increasing wage data is keeping inflation risk high.  This will likely cause another slight increase in rates by the FED, thus pushing commodities higher. 

One has to wonder if the increase in manufacturing and retail sales is more catch-up demand, as supply chain bottlenecks appear to be loosening.  Either way, we are walking that fine line, and the market will take some time to reassess.  This means it could be unlikely that we see large swings higher or lower for a period.  Again, demand on a world level will have a strong pull with pricing as Russia appears to be maneuvering around the price caps, selling product to the easiest outlet.  News is that new “component” export sanctions are being drafted that will limit raw materials from being shipped into Russia preventing them from build items like computers, machinery and weapons. 

Its been a slow retreat to “normal” levels and while I would like to think more is in store, we will likely take a sideways path to get there.

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Spiking Prices & Labor Shortages Complicate Energy Outlook

Lots of interconnected events in Energy News this past week or so – we’ll run through and touch on some of the major items and attempt to keep it (relatively) brief.

Here we go:

US Crude Oil prices hit $80 Monday for the first time in 7 years, largely on the basis of surging demand and simultaneous supply issues for power & gas globally, particularly in China, India and Europe.

Last week we saw Natural Gas hit historic highs of $185 per mwh on the supply crunch, although prices have backed off highs this week upon the announcement from Russia’s Vladimir Putin that Gazprom would increase output to Europe to help ease their supply woes.

Speaking of Putin, he went on record Wednesday that he believes Oil could reach the $100/bbl mark (again). OPEC+ (which includes Russia) has been resistant to calls to up their production increases, choosing instead to stick with the previously agreed upon increases.

The Biden Administration has reportedly been relaying their concerns about rising energy costs to unnamed OPEC+ senior officials, and more publicly has called on oil producing nations to “do more” to up supply in order to ease price increases and global supply issues. So far they have not been successful, largely because longer term economic and demand growth numbers don’t look exceptionally promising, so OPEC+ member nations are unwilling to jump up supply to ease pricing when the longer term demand required to keep pricing reasonably benchmarked does not appear to be there.

Additionally, Reuters is reporting  this afternoon that the White House has been speaking with domestic producers about helping to bring down costs. It’s unclear exactly what they are hoping for on that front, or what may have been discussed specifically.

Gasoline in the US is at a 7 year high (averaging $3.29) and the EIA Short Term Energy Outlook reporting this morning indicated that consumers can also expect to pay substantially more for energy this winter

(you can read that report here: https://www.eia.gov/outlooks/steo/report/WinterFuels.php)

Domestic output has not rebounded to pre pandemic levels, and is well off from 2019 highs. In addition, the surge in natural gas pricing means dual fueled power generation systems are likely to be looking at diesel to offset some of the cost this winter. This is what helped dampen prices on Crude & Diesel today somewhat – Crude demand will exceed earlier expectations if power generation does in fact move toward a more diesel heavy mix than we see in a typical winter…. Theoretically.

One of the factors we will need to see play out however, is that increased diesel demand is all well and good, but the ongoing (and apparently worsening) labor issues in the United States may complicate that option. The driver shortage is impacting delivery times and logistics across the country, nowhere is that more clear than the ports. The Biden Administration just announced the Port in Los Angeles will run 24/7 in order to attempt to catch up with backlogged demand and offload stranded container ships. The problem however, is these are backlogged in the first place because of labor & driver shortages, so it isn’t clear how effectively 24 hour runs will solve the backlog. The news is warning of transportation issues already ahead of the holiday shopping season rush, so the lingering question becomes how well will transportation companies and fleets be able to pivot and meet demands with the pressure of labor shortages on their backs, if in fact they continue. 

At the end of the day, lots of news directly or indirectly impacting the energy markets the last few weeks, most of it less than optimistic. However, its worth remembering that we’ve seen supply crunches, or demand outlook changes, or OPEC pivots, or US Presidents’ remarks rile up the markets and send the news analysts into a tailspin, only to resolve themselves in the short term a million times. As always, it ain’t over til it’s over, and we will have to see the longer-term implications of the multiple competing factors currently at play.

Stay Tuned!

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WTI Hits Lows on Inventory & Projection Data

WTI Brent Crude Decline

Prices continued to slide Wednesday as the EIA reported builds in Crude supplies of 2.21mmb for the week ending June 7th. (Yesterday, the API report indicated even more drastic build of 4.9mmb). This afternoon, WTI closed out at $51.14/bbl, the lowest close since January. WTI has dropped close to 20% since April peaks. 

On the NYMEX today, both gasoline & distillates tumbled alongside Crude, shedding -.0702 and -.0422, respectively. (The session closed out at $1.6861 for RBOB, $1.7799 on ULSD.) 

In addition to pricing being low, demand forecasts have been revised downward for 2019 & 2020 by the EIA, by around 100K bbl per day, globally.  

However, despite both the drop in prices and the slowing demand, forecasts indicate that not only will production continue in the US, but will ramp up by approximately 1.4mmb/day in 2019, according to the EIA. This is supported by statements made by the Deputy Energy Secretary of the United States, Dan Brouillette this week, who said production would continue to increase domestically despite pricing and demand concerns and he expects that demand concerns will resolve "as the economy begins to rev up". He also dismissed concerns that the ongoing tariff dispute with China would adversely impact US production, which remains to be seen. 

Analysts seem to be in agreement that OPEC is unlikely to seek any more curbs in output for their member nations, so essentially, with no major impact events on the horizon, we are just waiting to see if this is the bottom, a new normal, or a temporary blip. 

Stay tuned!

 

 

 

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Today's Takeaways from the EIA Short Term Energy Outlook

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The US Energy Information Association - EIA - is out today with the Short Term Energy Outlook report with projections for 2019 & 2020.

Here are what I think are the major takeaways:

  • 2019 Price forecast for Crude oil - $61/bbl Brent, $53-57/bbl WTI. The Brent average for 2018 was $71/bbl, so we are expecting to continue to downward overall trend in pricing. 
  • 2019 Projected retail gas price - $2.47 (Down from 2018 average of $2.73) 
  • US Crude Production hit a high in 2018 - it is expected to continue to accelerate from the current level through 2019 & 2020. Over the next 2 years, experts expect an increase of over 1.5 million barrels per day. 
  • US Importing of crude & refined products is expected to continue to decline. Although we temporarily saw the US become a net exporter in 2018, the actual average per day imported was around 2 million barrels. That's expected to decline to 1mmb/d for 2019 and a shocking 0.1 mmb/d per day in 2020. (You read that right - .01, amazing)
  • US (Dry) Natural Gas production is expected to jump from 83 bcf per day in 2018 to 90 in 2019. 
  • Global Inventories are expected to continue to increase.  
  • On the clean energy front, coal's role in electrical production continues to decline over the next 2 years. Hydropower's share of generation is projected to remain stable. Wind power electrical generation is expected to outpace hydropower for the first time ever in 2019.
  • Carbon emissions are projected to decline 1.2% in 2019 as well, and a little under 1% for 2020 as it stands now. 

 

Long story short - expect more production, more inventory, lower prices, continued progress and growth on cleaner energy and a decline in carbon emissions - all at the same time. Happy 2019!  

 

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EIA Long Term Projections Dampen Inventory Effects

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WTI was in the red today ahead of the EIA inventory report.

API projections were that Crude would show builds of 3.1mmb - of note on this is API was an outlier of sorts, Platts forecasted draws of 400K barrels ahead of the official reporting.

Internationally, IEA Forecasts for global oil demand growth remained at 1.6m bpd, so flat demand growth amid the continued oversupply that doesnt seem to have much of an end in sight, long term picture wise. 

Anyhow, the official EIA report showed a draw down in Crude of 2.8mmb for the week ending 10/6. Gasoline was up 2.5mmb and distillates were down 1.5mmb. Gasoline had been projected to be down 1.4mmb, so the drop off we saw on gasoline today makes sense given the actuals. 

Side note - the EIA Report showed builds in Nat Gas of 87 billion cubic feet, right in line with Platts projections. The market was essentially unchanged on the builds, presumably because it makes sense there would be a temporary bump in inventories given temperatures havent dropped off, so demand should be low.Usually in New England we are well into the battle to keep the heat off til November 1 by now - this year not so much. I still have my air conditioner in the window.  

Gulf Refineries are back online and at capacity after temporary shut downs for Hurricane Nate, which probably is a factor in pushing pricing down as well in the face of flat demand.

In addition to the U.S. being back fully functional, EIA forecasts put U.S. domestic crude production at 9.9mmb per day for 2018 which would be the highest on average in U.S. history. Continued domestic production is seen as being a factor that will offset moves by OPEC or other nations to push a pricing rally. Theoretically, a rally cannot be sustained long term globally if the U.S. keeps production levels rising. We'll have to wait and see on that. 

The official numbers we closed out at this afternoon were: ULSD 1.7655 (-.0206), Gas 1.5832 (-.0260) and Crude landed right around the benchmark at $50.60

Thats all for today!

 

 

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Stocks & Oil Markets Take a Wild Ride Into 2016

Line charts depicting the stock market scattered on a table

The last day of trading in 2014 saw Crude close out at $53.27/bbl, which was down 45% from the prior year. 2015 continued the trend with WTI dropping another 30% over the year - with December 31, 2015 settling out at $37.04.

This week we crashed down through the $35-36 dollar support levels and are rapidly approaching the next one of $32.50/bbl after todays tumble resulted in Crude closing out at $33.97/bbl.

Let's take a step back and look at what went on this week to push oil prices down 8% since December 31st.

Monday, January 4th, markets initially shot up with ULSD and RBOB both jumping over a nickel by 10am (+.0516 and +.0576, respectively), before almost immediately changing course - both products were down by noon to flat on ULSD and only up .0156 on gas. So what happened?

Monday brought the news that the Saudi's had cut all diplomatic ties with Iran and ordered all Iranian diplomats to leave the country within 24 hours. This was in response to the Kingdom executing 47 people over the New Years weekend, including and most importantly, a renowned Shiite cleric, which prompted riots and vandalism to the Saudi embassies in Iran and Bahrain. 

As the day went on however, the analysis of the story moved from fear of international conflict bumping up cost over supply disruptions, to the realization that the standoff between Iran and Saudi Arabia meant that this could essentially be the death knell for OPEC. As far as the bears see it, this breakdown of relations essentially guarantees the Saudis will not take any moves to cut production in order to stabilize pricing, because to do so would greatly help Iran, in that the newly allowed exports they promise to flood the markets with would generate them much more revenue. 

Economic data from China Monday supports the bears as well. It was a factor in pushing down oil prices, as well as being responsible for crushing European markets and resulting in the single worst year opening for the Dow Jones since 1932. Overnight, Chinese stocks crashed over 7% and led to a halt in trading across the board - a halt that didnt come soon enough not to pummel stocks internationally. One can only hope the old Wall Street adage "As goes January, so goes the year" is wrong this time. 

There was some bouncing around Tuesday, particularly on the overnights as investors and analysts weighed the API projections that predicted draws in Crude stocks to be announced Wednesday. However, today's EIA report showed just the opposite, and swiftly tanked the market across the board. At the close, ULSD lost -.0446 to settle at 1.0807, RBOB shed almost ten cents (-.0949) to close at 1.1618 (very close to the $1.10 support level) and Crude settled down $2 at $33.97.

What next? Bears are predicting oil hits and potentially breaks through the $32.50 support level for a brief stint in the upper 20's ($28 range), while the Bulls are predicting a jump back to the $37 level. We shall see. 

Stay Tuned!

 

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EIA Projections for 2015 & 2016 Released Today

The EIA released its Short Term Energy Outlook today with its projections for both Crude prices and US Crude Oil production through 2016. It also projects where we will be on retail gasoline, natural gas storage, and electricity for 2015 & 2016.

In a nutshell, the outlook is as follows:

  • Brent is expected to average $61/bbl for 2015 and $67/bbl in 2016. The prior projected price for Brent in 2016 was $70/bbl
  • WTI is also forecast to drop about $3 dollars from the prior projection level for 2016. It forecasts WTI for 2015 to be up about a dollar higher than prior projections (up to $55.35/bbl)
  • Crude production is expected to dwindle slightly through early 2016, but the total projected volumes were revised up slightly - the new projected numbers are 9.4mmbpd in 2015 and 9.3mmbpd in 2016
  • Natural gas injections are expected to continue to climbing over their historic highs through 2016.
  • Retail gasoline is expected to decline slightly through the end of the year, backing off its current yearly high. 
  • Additionally, for consumers, the EIA is projecting an almost 5% increase in electricity bills for this summer season.

Other mentions of note, Brent saw its highest monthly average of 2015 in May, a $5 jump over its April average price. Retail gasoline also hit its high for the year in May. All of this despite inventory builds and OPEC production levels remaining at highs. 

The EIA Inventory Report publishes tommorow morning, we'll have to see how that impacts the NYMEX. Hopefully its an easier day than today, where we saw ULSD jump up .0631 to settle at 1.9179, and RBOB jumped .0696 to 2.0771 at the close. 

Stay tuned!

 

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RBOB Heats Up on EIA Inventory Shortfall

Line charts depicting the stock market scattered on a table

Today's EIA Inventory report for the week ending April 17th showed a build of 5.5mmb on Crude, but a drop of 2.1mmb on gasoline. Interestingly, even though analysts had projected a mere 2.6mmb build in Crude while the actuals were more than double that, Crude ticked upwards along side RBOB and ULSD initially before settling back down.

Stocks were up across the board basically today as well, on positive economic signs - 71.9% of S&P companies who have reported earnings have reported earnings above analyst expectations. Additionally, housing sector reports indicate a jump in existing home sales of over 6% for March versus February, which is also an 18 month high - a good sign for the economy and also a factor in pushing todays stocks up. 

On the negative side, bombing resumed today in Yemen, precisely ONE day after peace talks, which may or may not impact the markets tommorow.

At the close, gas retreated from the intraday high of +.0424 to close out at 1.9245 (+.0364) and ULSD closed up +.0176 to 1.8708, with Crude closing off -0.45 to 56.16.

Stay tuned!

 

 

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WTI Drops Big (Again) on Expected Builds

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Last week as we discussed, the EIA reports for the prior week (ending April 11) saw inventory builds in US Crude supplies while gasoline inventories drew down. Crude Inventories actually hit their highest level since June 2013 and production hit its highest level since 1988. 

Platt's is estimating that this Wednesdays EIA report (on the week ending April 18th) will show inventory builds of  up to10 million gallons. As a result of the anticipated build, WTI has dropped more than we've seen in the previous 3 months. Brent Crude, the European benchmark, wasn't quite so lucky.

Compared to WTI's over 2% drop, Brent was down less than one percent on continued Ukrainian tensions (stop me if you've heard this one before...) and on the heels of Vice President Biden's speech this morning in Kiev, in which he expressed US support for Ukraine. The sentiment, though true, wasn't very helpful for the already fragile (read: falling apart) agreements with Russia to reduce friction in the area, especially coming one day after Secretary Kerry demanded that Russian Foreign Minister Lavrov control seperatist activity in Ukraine, with the Russians firing back that the US should intercede in to control "Ukrainian militia activity" in the region and today insisting that any agreements reached in Geneva "have nothing to do with us".  

The global headache that is Ukrainian/Russian/US relations at the moment would likely have resulted in a lot of market volatility and price spikes, but consistently increasing inventory levels have seemingly kept it at bay, particularly domestically. Hopefully that trend continues, and we start to see some progress towards resolution in Eastern Europe.

 

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