Energy Futures Are Ticking Modestly Higher In Quiet Trading Friday Morning
Energy futures are ticking modestly higher in quiet trading Friday morning with politics and basketball taking over the headlines.
The financial times is reporting that US officials put pressure on Ukraine to stop attacking Russian refineries because they “Risk driving up global oil prices” and “nothing terrifies a sitting American president more than a surge in pump prices during an election year.” If true, that puts an interesting political spin on the situation as it gives Ukraine leverage to negotiate for the artillery they’ve been begging for to fight the war in their own country, and house republicans may be more apt to continue blocking that funding even though a majority in the Senate are ready to approve it. No word yet on if US officials have also asked nicely for Russia to stop attacking Ukrainian power plants.
Another big story in energy politics this week has been the announcements from the EPA on changing CAFÉ standards and EV emissions calculations. The delays in the standards appear to be a concession to the auto industry who has said that the previous targets were unattainable and would take away union jobs.
Sticking with the political theme this morning, the ranking member of the Senate’s Committee on Energy called out the IEA Thursday for abandoning the agency’s mission of promoting energy security and instead becoming a cheerleader for an energy transition. While the IEA is an “independent” group built to counter OPEC’s influence after the embargos 50 years ago, the US does provide a large amount of the funding that allows the agency to operate.
The EIA published an analysis on the South China Sea Thursday, highlighting the various disputes and conflicts that keep the region on edge. More than a third of all petroleum shipped by sea moves through the South China Sea, with a staggering 28 million barrels moving every day.
Pemex reported a leak at its 312mb/day Deer Park refinery that spilled oil into the Houston Ship channel Thursday, but the spill appears to be caused by a sump pump, and not a refining operating unit, so the news has been largely shrugged off.
Bracket busted? Don’t worry, you’re not alone.
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News & Views
View AllULSD Took A Week To Make A Move It Would Have Easily Made In An Hour 2 Years Ago
Energy markets are starting the week moving modestly lower with losses on either side of a penny/gallon for refined products. For ULSD, this would mark a 6th consecutive drop if prices stay negative today, with a total decline of 13 cents during that stretch, 11 cents last Monday/Tuesday and just 2 cents in the past 4 sessions. Another way to look at this, ULSD took a week to make a move it would have easily made in an hour 2 years ago.
While several analysts are suggesting the stock market may get a short term boost from the failed assassination attempt over the weekend, energy markets may be seeing a very minor reaction in the other direction as a Republican president would be more friendly to the industry, thereby allowing incremental supply to reach the market, which lowers prices and is actually bad in the short term for producers.
Hedge funds had mixed activity last week, adding modest amounts of length (bets on higher prices) in WTI, Brent and RBOB via a combination of new longs and some short covering, while the diesel contracts (ULSD and Gasoil) both saw modest reductions. WTI is seeing the most bets on higher prices from large speculators than we’ve seen all year, although it’s well below historical highs, and ULSD has stayed in net short territory for 6 straight weeks.
Baker Hughes reported a net decline of 1 oil rig and 1 natural gas rig active in the US last week, bringing the totals for both to fresh multi-year lows.
Total’s 200mb/day Pt Arthur TX refinery was taken offline Saturday due to a loss of steam, and the company expects flaring to be ongoing throughout the week as they attempt to bring the facility back online. There have not been any other refinery filings to the TCEQ the past 3-4 days, suggesting the restarts after Beryl moved through a week ago are progressing well.
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Falling Gas Prices Have Not Been Good News For US Refiners
Refined products are attempting to find a floor after dropping by more than a dime in the first three days of the week. RBOB futures are trading modestly higher for a 2nd straight day, while ULSD futures are set to snap a 4-day losing streak.
Yesterday’s CPI report brought the first negative inflation reading for a month in 4 years, with lower gasoline prices the main contributor to the decrease. Stock market investors had mixed reactions to the report as the tech bubble looks like it may be starting to burst.
Falling gas prices have not been good news for US refiners that are seeing margins slide close to break-even levels at the time of the year that often brings their best profits. Crack spreads have recovered marginally in the past week but will still be cause for concern as summer starts to wind down.
Russian officials are recommending another ban on most gasoline exports as ongoing attacks by Ukrainian drones, and the upcoming peak demand season are creating concerns over domestic shortages.
Marathon was reportedly attempting restart at its Galveston Bay (FKA Texas City) refinery Thursday after Hurricane Beryl knocked out power to the facility and once again exposed weaknesses in the state’s power grid. A report Wednesday from the Dallas Fed discusses the challenges in meeting the state and country’s growing demand for electricity.
While Hurricanes are the most talked about threat to refineries, heat waves are becoming more of a concern, particularly in Europe as facilities are struggling to maintain steady rates as temperatures rise.
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Refined Product Futures Prices Are Climbing Slightly Higher This Morning, Trying To Turn Today Into Reversal Thursday
Refined product futures prices are climbing slightly higher this morning, trying to turn today into Reversal Thursday and snapping this week’s downward trend. Diesel futures are leading the way higher, gaining 2+ cents to start the day while gasoline follows close behind, trading 1.5 cents over yesterday’s settlement.
The International Energy Agency published their monthly Oil Market Report early this morning, this week’s latest report from the industry’s sundry data reporting organizations affectionately known as Alphabet Soup. The IEA trimmed its oil demand growth forecast citing, generally, slowing global economic activity and, specifically, a decline in Chinese oil consumption. The Agency expands on the latter, attributing its lower demand expectations to factors like the looming real estate crisis in China and the country’s shift towards electric vehicles.
Power has been restored to the section of the Explorer Pipeline going from Houston to Greenville (North Texas) after being knocked offline Monday morning. Group 3 ULSD physical prices reacted promptly to the news yesterday, trading down to 14 cents below the screen. Outages persist in the Houston area where millions are still without power. Tracking said outages is, apparently, difficult for power providers, forcing some Texans to turn to a sacred regional chain for real-time information, adding to the host of reasons for it being the hometown favorite.
The Bureau of Labor Statistics came out with their monthly update on the status of inflation in the US, reporting that it slowed more than expected in June, dropping to 3% annually. While this may lead to the possibility of a rate cut in the near(ish) future, BLS also noted that the third consecutive month of higher unemployment could serve as harbinger for that nasty ‘R’ word.
Four days after making landfall on the US coast, the remnants of hurricane Beryl are still causing headaches, this time brining heavy rains and flooding to the North East. With pipeline outages and minimal refinery hiccups behind us, it looks like energy infrastructure is in the clear, for now, but the sudden appearance of tropical activity off the southern Atlantic Seaboard proves a stark reminder that there is more to come before the season is out.