Outlook: The energy complex is trending lower today with crude and products all in the red. Product losses are outpacing crude and as a result crack spreads also hold a softer tone. Contracting crude spreads and lower cash prices in crude are signaling weaker demand and will act to keep the 3-week bearish trend intact. Israeli forces began their ground offensive yesterday as they ceased control of a key crossing into Gaza. The market doesn’t appear to be concerned with the move and at the end of the day, without spillover, there are no further supply disruptions expected from this offensive. The Red Sea is still seeing restricted supply movements, however a weaker demand environment is preventing the disruption from causing considerable supply tightness. Reuters preliminary poll is suggesting draws of over 1 million barrels for crude and products last week which may provide support if confirmed from the EIA tomorrow. The API survey this afternoon will give traders further insight into what to expect for domestic fundamentals last week.
Crude
- Israeli forces have seized control of the Rafah border crossing between the Gaza Strip and Egypt. (Reuters)
- Russian Deputy Prime Minister Alexander Novak said today that OPEC+ has the option of increasing oil production but will depend on current market conditions. The group is scheduled to meet on June 1st.
- 87% of traders surveyed by Bloomberg last week expect OPEC+ to extend their current production cuts. Citigroup, JPMorgan, and Morgan Stanley have shared the same view.
- Physical crude prices along with spreads continue to lean bearish.
- Reuters estimates crude stocks fell 1.2 million barrels last week.
- The EIA will release its STEO report around noon.
- The API will report its inventory survey this afternoon at 3:30 pm CT.
- As of 8:13 am CST: Brent crude oil down $0.50 to $82.83, US dollar index up $0.075 to 105.128 while the nearby e-mini S&P 500 futures contract is up 9.25 to 5215.00.
Diesel
- China’s fuel exports this month are expected to be 6.5% higher than April, and 26% higher than year ago levels. (BBG)
- Saudi’s oil price hike to Asia may cause refiners to cut fuel production due to lower margins.
- Reuters estimates diesel stocks fell 1.2 million barrels last week.
- Total corn planting progress was reported at 36% this week vs 27% last week and vs 39% 5-year average.
Gasoline
- Russia is considering lifting its gasoline export ban. (BBG)
- Reuters estimates gasoline stock fell 1.4 million barrels last week.
Propane
- Conway is trading at .6650 while Belvieu is trading at .6725.
- Conway Swap Oct24-Mar25 strip indicative midpoint ~.7400.
- Conway propane is trading at 36% to WTI.
Natural Gas
- Overnight weather runs removed 4 TDDs for the two-week forecast.
- Reuters estimates nat gas stocks rose between 77-90 Bcf last week.
- Nat gas prices have found support from a return in demand at Freeport LNG.
Continuous WTI Time Spreads: Crude spreads continue to contract which may reflect a looser supply environment. While crack spreads have also declined, margins still remain favorable for high operating levels.
