Energy Market Updates

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Venezuela

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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OPEC output keeps upward price pressure on, PDVSA sanctions have little impact

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Prices have been trending upward this week, largely based on OPEC following through on production cuts. Namely, we saw a drop in output of around 800K bpd in January by its member nations. This would seem to indicate that the so called "OPEC+ deal" to cut output and thus global oversupply is actually being followed, and it appears it is starting to have the desired effect - stabilizing prices higher than we have seen over the past year or so.

On the other hand, US domestic production continues to surge, which is holding off the major jumps in pricing we would expect to see on the OPEC move normally. 

This afternoon WTI settled out at $53.90 (from 52.41 Monday), ULSD closed up +.0316 to $1.9388, and RBOB jumped +.0379 to settle at $1.4651.

Assuming we see the existing dynamic continue to play out over global (OPEC) vs domestic (US) output, the main question on how widely pricing will swing in the next few weeks hinges on Venezuela.

The sanctions placed on state run PDVSA by the Trump administration are the type of political event that normally rocks the market, but so far in terms of benchmarking they have had little effect (on the NYMEX - that is not to say they have not or will not have a serious impact Venezuela/PDVSA, to be clear).

CNBC has a great piece today detailing the impacts the IEA expects to see from the sanctions, and why they don't see them having an outsized impact. You can read that piece here:  "Don't expect US sanctions against Venezuela to fuel a rally in oil prices, IEA says" 

Stay tuned! 

 

 

 

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EIA Draws Keep NYMEX Boosted; Venezuelan Vote & Sanctions Loom

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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. 

Yesterday we talked about the OPEC production & export factors affecting the market, as well as projected slow downs in domestic oil & gas exploration. (For a refresher, you can peruse yesterdays article here: 2017s Largest One Day Rally Hits on OPEC & US Production Projections ) 

Today, while API projections called for a 10.23mmb draw in Crude, the EIA Inventory Report showed an actual draw of 7.2mmb. Current Crude levels are now around 483.4 mmb, or the upper end of average for this time of year. For finished products, distillates drew down 1.9mmb but are still on the upper end of what we normally see for average levels, while on gasoline, projections were calling for a build of 1.9mmb but actuals showed a draw of 1mmb. 

In broader news that can potentially have huge ("YUGE!") market impacts, the Trump administration has floated the possibility of a ban on Venezuelan Crude as a U.S. response to Venezuelan President Nicolas Maduro, should he choose to go forward with rewriting the country's constitution, in what the United States sees as a move to clamp down on opposition. The vote on rewriting the country's constitution is expected Sunday, and Platts is reporting that the U.S. Treasury department is crafting sanctions currently. 

At the same time however, even as the Treasury works out the details, it appears the Administration has already backed off of the idea after looking at its potential impacts. They are now hinting at more targeted sanctions than an overall ban, but that would still likely create some serious aftershocks in the market.

Venezuela is the third largest supplier of imported Crude oil to the United States (after Canada and Saudi Arabia), and supplies a huge percentage of the Crude refined in the Gulf Coast.

A ban could be devastating for US refiners and importers, and even simply not taking the option off the table could impact the markets in a drastic way over the next few days, particularly if the option remains even theoretically possible on Monday after the vote takes place (its expected to be a "show vote" with Maduro's desired outcome essentially 100% certain).

Definitely something to keep an eye on that could drastically change the supply and pricing picture as we know it.

Stay tuned!  

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Refinery Explosion and Storm Fears Push RBOB Higher

The speculators jumped on the buying train as soon as trading opened Sunday evening and we saw RBOB jump to as high as 3.2050 (+.1250)before cooling off ahead of open outcry. The Explosion at the 650k bpd Amuay refinery in Venezuela is said to have caused at least 25 deaths and substantial damage to the surround area. With all the devastation, the unit is said to be back online by the end of the week. This facility is said to supply roughly 360 bpd of gasolines to the east coast. Additionally, the threat of Hurricane Isaac to the Gulf region has skyrocketed RBOB values. The storm, expected to make landfall sometime Tuesday evening, appears to be taking the same path as Rita and Katrina. This time however, it is much smaller in size and most offshore rigs have been evacuated and shutdown. The key to remember about storms is while it does take product off the market, it also reduces demand. The fact that HEAT finished marginally higher is a big win for Bears, considering it was up over .07 at one point. At the Close, Crude actually closed down .68 to $95.47, HO was up .0017 to $3.1118 and RBOB jumped .0768 to $3.1548.

WEEKLY HEAT CHART

weekly heat chart

HEAT
Close Change
SEP 3.1196 +.00170
OCT 3.1195 +.00080
NOV 3.1196 -.00540
DEC 3.1186 -.00920
JAN 3.1162 -.01210
FEB 3.1013 -.01380
RBOB
Close Change
SEP 3.1548 +.0768
OCT 2.9500 +.0395
NOV 2.8389 +.0049
DEC 2.7747 -.0112
JAN 2.7450 -.0180
FEB 2.7387 -.0209



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