Scott Wilson
Outlook: Energy futures are trading lower this morning on an abundance of bearish news. WTI crude is trading below $78 and the 100-day moving average, which have both been significant floors over the last 15 trading sessions. The main driver continues to be the Federal Reserve’s stance on interest rates and how higher rates could destroy energy demand in the coming months. Fed policymakers said they should wait several more months to ensure inflation is on target prior to cutting rates. The current indication is September is the absolute earliest for rate cuts. The prospect of higher rates is also propping up the dollar as it is trading higher for the fourth time in five days. Surprise inventory builds yesterday afternoon were also bearish for prices. We’ll see if the EIA data matches later this morning. Distillate futures continue to be the weakest part of the energy complex and are a great value compared to crude. The heat crack spread of 24.50 is near the lowest level over the past two years which is bad news for refiners, but good news for people purchasing distillate. Distillate futures below $2.50 with crude hovering around $78 is not a bad deal. Gasoline futures are down over 3 cents this morning after the Biden Administration announced plans to release 1 million barrels of gasoline from the Northeast Gasoline Supply Reserve in a bid to lower prices at the pump this summer. Conway propane has found a support level at .67 cents and has had trouble breaking through to the downside over the past few weeks. The reasoning for this is rangebound crude futures, propane as a percent of crude at the bottom of the seasonal range, and record-high exports. OPIS market participants are expecting an inventory build of 2.74 million barrels in the EIA report later this morning, with a range of 1.75 – 3.5 million barrels. A larger build or a reduction in exports could be what is needed to break below 67 cents for Conway.
Crude
- The June 24 WTI futures contract expired yesterday at $79.26.
- Crude markets posting fresh one-week lows.
- Brent crude oil prices versus Dubai reached the lowest premium since December yesterday, suggesting Brent demand is softening. (GS)
- The July 24 vs Aug 24 Brent prompt spread narrowed to +18 cents per barrel, the lowest level since January.
- Brent to WTI premium narrowed by more than $1 since the beginning of the month.
- WTI crude futures 12-month calendar spread is backwardated $4.50.
- WTI crude futures trading back below the 100-day moving average for the first time in 6 sessions.
- Russia’s crude flows moved higher in the week ended May 19 and are running around 20K bpd higher than the 2023 average.
- Analysts are expecting OPEC+ to extend their production cut quota past June which is limiting oil price downside.
- CME FedWatch showing a 98% probability of no interest rate change in June.
- As of 9:00 am CST: Brent crude oil is down $1.10 to $81.78, US dollar index up $0.089 to 104.645 while the nearby e-mini S&P 500 futures contract is down 2.50 to 5342.50.
Diesel
- The diesel curve remains in Contango through the November contract.
- Distillate inventory 5.5% below the 5-year average.
- Distillate demand is 5% below the 5-year average.
Gasoline
- The 1-million-barrel release of gasoline from the Northeast Gasoline Supply Reserve comes from storage sites in New Jersey and Maine and will be allocated in increments of 100,000 barrels at a time throughout the summer.
- Gasoline inventory is 2% below the 5-year average.
- Gasoline demand is 3% above the 5-year average.
Propane
- Conway is trading at .6825 while Belvieu is trading at .7025.
- Conway Swap Oct24-Mar25 strip indicative midpoint ~.7425.
- Conway propane is trading at 36% to WTI.
Natural Gas
- Natural gas prices trading near the highest level since January 26.
- Natural gas prices have increased 80% since the most recent bottom on April 26.
- Current level of resistance for natural gas is $2.80.
WTI-ULSD Crack Spread:
