Outlook: Energies are sliding early this morning after what ended up being a very strong session yesterday. A positive tone in the macro environment regarding debt ceiling progress has been a supportive element this week. The clock is ticking with a default projected as early as June 1st if a deal is not reached. Despite optimism on the debt front, Fed fund futures have begun to shift towards the possibility of another rate hike in June. While it's far from consensus, it’s a notable shift after pricing more towards a rate cut just a month ago. Further tightening could increase the chances of a deeper recession and threatens energy demand. Market fundamentals have been supportive this week despite a larger-than-expected build in crude stocks last week. Reports that India is aiming to refill their strategic reserve may provide an uptick in crude demand while wildfires in Canada are ongoing and have roughly 300,000 bpd of production shut-in. Total product demand in the US over the last four weeks averaged 19.9 million bpd, which is 2% higher than a year ago, showing resistance to recessionary demand destruction.
Crude
- Global oil demand rose by 3 mbpd m/m in March to the highest level ever recorded by JODI-reporting countries, according to the IEF citing JODI.
- Wildfires in Alberta has nearly 2.7 mbpd of oil-sands production in “very high” or “extreme” wildfire danger zones according to Rystad Energy. 300,000 bpd of production is estimated to be shut in.
- India is considering refilling their strategic reserve and plans to import 9.2 million barrels of crude. Timing and crude grades remain unknown.
- Yesterday, President Biden expressed confidence that negotiators would reach an agreement prior to a default. The risk of default is projected as early as June 1st.
- Fed fund futures are pricing in a 20% chance the Fed will raise interest rates at its June meeting, compared to a 20% chance of a cut a month ago.
- The US dollar hit a 7-week high this morning at 103.172
- The EIA reported a larger-than-expected build of 5 million barrels for crude stocks last week.
- US crude production fell by 100,000 bpd to 12.2 mbpd.
- US net crude imports fell by 130,000 bpd with exports increasing by 1.4 mbpd to 4.3 mbpd.
- As of 7:50 am CST: Brent crude oil down $0.42 to $76.42, US dollar index up $0.429 to 103.311 while the nearby e-mini S&P 500 futures contract is down 1.25 to 4169.00.
Diesel
- The EIA reported an 80,000 barrel build in diesel stocks for last week.
- US diesel demand fell 7.4% w/w to 3.7 mbpd.
- 4-week average diesel demand is 0.1% year ago levels.
Gasoline
- The EIA reported US gasoline stocks fell by 1.3 million barrels last week.
- US gasoline demand fell 4.2% w/w to 8.9 mbpd.
- 4-week average gasoline demand is 2.9% above year-ago levels.
Propane
- Conway is trading at .6450 while Belvieu is trading at .6500.
- Conway is trading at 38% of crude.
- The US is exporting 65% of production as of 5/12/23.
- The EIA reported US propane stocks rose by 2.2 million barrels last week.
- Propane stocks sit 14.7 million barrels above the 5-year average.
Natural Gas
- Overnight weather runs added 3 CDDs through the two-week forecast.
- Yesterday, US natural gas demand rose to 94.9 Bcf/d.
- The EIA is expected to report a 106 Bcf injection into storage for last week.
- This would be 15% above the 5-year average 91 Bcf injection.
Renewable Diesel: Renewable diesel output increased to a record 592 million gallons in Q1 2023. The rise represented a 5% increase over Q4 2022 and a 42% increase from the same time period a year ago. Conversions of refineries previously processing crude have supported industry growth.
