Outlook: Energies are seeing mixed trade again today as it looks to find footing on the current supply and demand structure. The Fed made comments yesterday about increasing planned rate hikes which are supportive of the dollar and pressures commodities. Shanghai announced stricter enforcement of their covid lockdown, which came as a slight surprise to those who thought the situation had bottomed out. With estimates of around 1.2 million bpd of demand loss due to the lockdown, covid remains in control of the energy market. Diesel is resisting the declines in crude and gas today as it remains one of the tightest markets of the three. Refiners will continue to shift production towards diesel throughout the summer to take advantage of the higher crack spread. With airline executives stating they could see fuel shortages this summer, there is additional demand security for refiners that may experience a higher cost transitioning gas over to diesel production.
Crude
- Shanghai is moving forward with additional lockdown measures, including daily testing
- Bloomberg estimates Chinese demand for gas, diesel, and jet fuel in April will be 20% lower than last year for the time period.
- A 20% decline in Chinese demand would equate to 1.2 million bpd.
- Morgan Stanley raised its forecasts for Brent crude by $10 for both the third and fourth quarter to $130 and $120 respectively.
- Fed Chair Powell indicated yesterday that the US will initiate two more half percentage-point rate increases to combat inflation.
- The dollar index continues to trade at 2-year highs pressuring commodities.
- Baker Hughes will report their rig count at 12:00 CST
- As of 8:55 am CST: Brent crude oil down $1.00 to $107.33, US dollar index up $0.407 to 100.985 while the nearby e-mini S&P 500 futures contract is down 37.50 to 4353.00.
Diesel
- Airline executives are predicting flight cancellations could occur this summer due to fuel shortages.
- Flight cancellations for Chinese airports remain at 69% amidst the lockdowns.
Gasoline
- The price of jet fuel and diesel crack spreads may result in less gasoline being refined this summer.
- Gas inventories remain supported compared to diesel but are tracking further below the 5-year seasonal average.
Propane
- Conway is trading at $1.2850 and Belvieu is trading at $1.3300.
- Propane continues to follow the movements in crude oil.
- The US is currently exporting 49.6% of its production.
Natural Gas
- Total US demand fell by 6.9 Bcf/d yesterday to 89.0 Bcf/d.
- Overnight weather runs were relatively flat for the two-week forecast.
- The EIA reported a larger than expected build of 53 Bcf for last week.
Diesel Trade Volume: With the surge in energy prices, we’ve seen open interest fall across the complex. We’ve seen the market stabilize to a degree from its initial surge, but we have yet to see open interest come back to the market at these elevated levels. A thinly traded market remains vulnerable to large swings over a short period of time.
