After 2 Day Gains Energy Futures Begin To Dip Lower

After a 2 day bounce, oil prices are leading the energy complex modestly lower to start Tuesday’s session, with futures continuing to take their cue from equity markets that are also pointing lower after 2 days of gains.

More trouble for California’s refineries: Marathon reported unplanned flaring at its Wilmington (LA area) facility Monday, while PBF quietly extended its planned flaring that was originally scheduled to last 1 week from 3/18-3/25 all the way to 4/21. The Torrance facility’s former owner Exxon Mobil is also facing a new legal suit, using a unique argument that the company was trespassing when it had a leak prior to selling the facility nearly a decade ago. PBF’s Martinez facility meanwhile reported multiple flaring events Sunday and Monday as they attempt to restart units that have been shuttered since a fire February 1st. Basis markets in both LA and San Francisco seemed to shrug off the news Monday, despite the fact that several terminals in the region are experiencing outages due to the loss of production.

The IEA lowered its global demand forecast in the April oil market outlook, joining the EIA and OPEC in blaming the trade wars for slowing economic activity. The agency also highlighted that while OPEC’s target output will increase at a faster rate in May, their actual output won’t increase as much as the target since several countries have already been cheating their quotas and overproducing. The report also noted that current oil prices are below break-even levels for many U.S. shale producers, but new production from Brazil, Guyana and Canada should still keep non-OPEC supply growth in positive territory this year.

The EIA highlighted on Friday the record exports of U.S. crude oil last year, with the Netherlands, South Korea and Canada the largest buyers of U.S. oil. The fact that the U.S. went from banning most oil exports to becoming the world’s 3rd largest exporter of oil (and top exporter of Natural Gas, Gasoline, Propane and other NGLs) in just 10 years can’t be ignored in the current environment of constant trade talk. Several countries are reportedly considering buying more US energy as a relatively easy way to balance their trade surplus with the U.S. in the hopes of cutting a deal to avoid tariffs, but a note from Wood Mackenzie this morning suggests that energy alone is not enough to close the gap for most. Meanwhile, Canada’s simultaneous position as the largest seller of oil to the U.S., and its 3rd largest buyer, is a good reminder of the complexity levels of refineries key role in global trade, and why more sophisticated U.S. facilities need discounted heavy grades to optimize their facilities, while many international facilities are better equipped to handle the light/sweet grades produced in the U.S..