The Recovery Rally In Energy Contracts Continues This Morning With Refined Products Now Up 15-20 Cents Since Last Tuesday

The recovery rally in energy contracts continues this morning with refined products now up 15-20 cents since last Tuesday, despite some bearish fundamental data from the EIA and IEA monthly reports. It seems clear that some of the big new bets placed on lower energy prices last week are being squeezed out of the market with this week’s rally, and the latest CPI report that showed cooling inflation is adding fuel to the bullish fire.

The BLS reported the Consumer Price Index for all consumers was unchanged in May, with an annual rate of 3.3%, both of which came below most published forecasts. As predicted last month, a big drop in gasoline prices in May was a major contributor to the steady inflation reading, offsetting price increases in shelter, food and services.

The EIA’s monthly energy market report lowered its forecasts for oil and product prices, as global supplies remain ample and non-OPEC production continues to provide plenty of global capacity.

The EIA cited the ongoing weakness in US trucking (quantified in the ATA’s Truck Tonnage Index) for the ongoing slump in diesel demand that’s pushed diesel cracks near 3 year lows. The ATA’s report suggests that “With a rebound in freight remaining elusive, it is likely that additional capacity will leave the industry in the face of continued softness in the market.”

The June outlook also highlighted the big gap between the S&P Global macroeconomic model that the government pays to use in its forecasts, and the actual outcome in terms of US jobs this year. So far in 2024, the S&P Global model has missed the actual job growth by about 90%. Anyone who remembers that S&P is the same group that rated credit default swaps as AAA credit risk in 2008 is probably not surprised by this. S&P also owns Platts.

The IEA continues to use its monthly report to beat a bearish drum, citing a slowing of world oil demand growth that’s roughly half of what it’s rivals at OPEC are projecting for the next 18 months. The agency also notes that refinery margins in Asia are already below “Run Cut” levels [thanks to the influx of new capacity over the past 2 years] and already they’re seeing Chinese refiners cut back rates to “COVID era” levels.

The API reported a draw in both crude and gasoline stocks of around 2.5 million barrels each last week, while diesel stocks increased by just under 1 million barrels. The DOE’s weekly report is due out at its normal time today, and then will be delayed 24.5 hours next week for the Juneteenth holiday on Wednesday.

And you wonder why refiners are leaving the state. In addition to the newly required monthly margin reports recently announced, the California Energy Commission sent out a letter to industry participants Tuesday detailing new requirements for refinery maintenance that take effect next week. Refiners planning maintenance at their facilities are now required to notify the agency at least 120 days before he event, or within 2 days of discovering the need for the work to be done in the case of short-notice or unplanned repairs.

Valero reported an upset at its Pt Arthur TX refinery that occurred Monday afternoon, impacting both a sulfur recovery and gas recovery unit. It appears that none of the major operating units were forced to slow rates however so should be a non-issue.

Today’s interesting read courtesy of RBN Energy: Why no one seems to care about the NE gasoline reserve being shut down.

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