Energy futures were moving higher for a 2nd day after a positive inventory report from the DOE and a steady outlook from the FED yesterday seem to have calmed things down a bit after 6 days of heavy selling.  Immediately after the traditional futures opening at 8am however, the overnight gains in ULSD and WTI were wiped out, leaving the complex looking vulnerable to more downside pressure.

RBOB gasoline futures are leading the move higher today – after being the only contract in the complex to fail to settle higher yesterday – after news broke overnight of a fire at the LyondellBasell refinery on the Houston ship channel.  So far it’s unclear what impact that fire may have on operations, but given the plant is more of an exporter than US supplier, there may not be a lasting impact on futures or cash prices in the Gulf Coast region.

The DOE report had some bullish headlines yesterday with inventory draws across the board, and strong demand for refined products.  As has been the pattern of late, the market reacted somewhat counterintuitively, rallying for a minute or so before selling off based on numbers that one might think should propel them higher.

Bears may note that the headline said crude oil stocks were down on the week, but the charts say they’re still only 250,000 barrels from their all-time high, and inventories at the Nymex delivery hub in Cushing OK were up 2.5 million barrels.

The last 2 weekly reports from the DOE may have refiners in the US breathing a sigh of relief.  After a brutal winter for demand, gasoline consumption estimates have stayed north of 9 million barrels for 2 straight weeks, which is well above the 5 year average for March. The start of the seasonal gasoline inventory drawdown before summer grade specs are required has brought gasoline days of supply back down to an average level of 26.6 days, down from a record of 31.5 back in January.

Diesel demand is also looking quite healthy, and inventories have rapidly moved closer to average territory from over-supplied as they’d been for many months.  There’s no doubt that the increase in oil drilling activity has helped diesel demand in parts of the country, but most of the increase appears to be coming from positive over-the-road trucking activity.

It’s a number that often goes overlooked, but refinery capacity in the US ticked up by another 34,000 barrels/day last week.  In the past 2 years more than 800,000 barrels of capacity has been added in the US as domestic producers have raced to expand their plants to take advantage of the local crude oil coming on stream  This rapid increase is a major reason we saw simultaneous records for inventory levels and export activity in the past several months.

The FOMC raised rates as expected yesterday, and forecasted 2 more rate hikes this year, which was exactly in line with their December forecast.  Equity markets reacted positively to the news, perhaps because the announcement limited the chance of additional increases this year.

CLICK HERE for a PDF of today’s charts

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