Markets Rallying To End The Week, Diesel Prices Lead The Way For Energy
Energy markets are rallying to end the week, with diesel prices leading the way up 2.5 cents in the early going. Equity markets are also rallying after a big Thursday selloff as strong tech earnings seem to be outweighing the FED’s favorite inflation gauge remaining stubbornly high.
RBOB gasoline futures are trading higher for a 4th straight day, but despite bouncing nearly 14 cents from Tuesday’s low, they still need to rally another nickel to break the downward sloping pattern forming on the weekly charts. Seasonal factors could go either way for gasoline for the next few weeks as we’re in the Spring peaking window, and while the high set April 12th would fit the annual pattern nicely, a May price peak is certainly not unusual, and if $2.85 is broken it seems like RBOB will run to $3 in a hurry.
Diesel prices have bounced 7 cents after touching a 5-month low on Monday but need to climb back above $2.60 to reduce the chance of a slide to $2.20 or lower should the chart support around $2.50 break down.
Back to the shadow war: After a relatively quiet few weeks in the Red Sea, Houthi attacks on ships have started again over the past few days, although so far, no major damage has been reported.
ExxonMobil reported another strong quarter in Q1 with more than $10 billion in free cash flow generated, even though earnings in its refining segment were down 67% from the first quarter of last year. The company noted the success of its Beaumont refinery expansion that came online last year and marked the only major refinery expansion in the US in over a decade. It's worth noting that within the refining segment, international earnings suffered more than domestic facilities did, with non-US refining earnings down 77% from a year ago as crack spreads came back to reality after the record-setting quarters in 2022 and 2023.
Chevron followed a similar pattern (as expected) in its Q1 report, noting strong operating cash flows of $6.8 billion in total, despite downstream earnings falling more than 56% for the quarter.
The company also highlighted its expanding marketing network along the US West and Gulf Coast markets encompassing more than 250 retail stations and highlighted its new solar-to-hydrogen project in California.
Phillips 66 continued the trend, reporting a “strong” quarter in which earnings were 63% lower than a year ago. The company highlighted the conversion of its Rodeo refinery which is now producing roughly 30mb/day of RD and is expected to ramp up to 50mb/day in the 2nd quarter. That facility had a capacity of more than 120mb/day prior to its conversion, and it used to produce gasoline along with its diesel. The company also noted its ongoing plans to sell assets that no longer fit its strategy, highlighting retail assets in Germany and Austria as being on the chopping block, while not mentioning any of its US refining assets that have long been rumored to be for sale.
Delek reported another upset at its Alon Big Spring refinery Thursday, which has become another one of the TCEQ’s frequent fliers after suffering damage from the cold snaps in both 2021 and earlier this year.
A harsh reality sinking in: Mexico’s President has made plenty of headlines with fictitious claims of energy sovereignty in the past few years, but not only is the country’s new Dos Bocas refinery still not producing finished products on any sort of meaningful scale, two of its other facilities have suffered fires recently forcing the country to import even more product from the US. This phenomenon continues to help US Gulf and West coast refiners who would be struggling (even more) to move their excess with sluggish domestic demand.
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ULSD 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.