Outlook: Energies are mixed this morning after trading higher overnight and into early morning. A struggling Chinese economy and a reduction in refining capacity in China are bearish this morning, while the same fundamentals that moved the market higher yesterday appear to be in play today. Geopolitical tension in the Middle East as Bloomberg reported Houthi missiles struck two bulk carriers in the Red Sea, and fighting continues to escalate in Rafah. The OPEC+ meeting scheduled for June 2 continues to add some strength to the market, which I don’t understand as an extension of the current cut should be priced into the market. However, OPEC has been known to throw curveballs so they could make an announcement to try to boost the market at the meeting. According to the Wall Street Journal, Saudi Aramco, the world’s largest oil company, which is owned by Saudi Arabia, plans to offer a fresh sale of between $10 and $20 billion of its stock as soon as this week to relieve some financial pressure on the kingdom. Saudi Arabia has had six straight quarters of budget deficits and is expected to have fiscal deficits in 2025 and 2026 due to high spending on several multi-trillion-dollar megaprojects. The last time the kingdom offered stock of Saudi Aramco, they sold 1.5% of the company and raised $29.4 billion, still the largest IPO ever. The important factor to remember is just how reliant Saudi Arabia will be on crude prices over the next few years as they fund their megaprojects. The country does not want to sell any additional shares of Saudi Aramco if it does not have to, so the only other way to fund its projects is through crude sales. This being the case, Saudi Arabia wants crude prices as high as possible and wants to produce as much crude as possible. This being the case, if crude prices remain weak for an extended period of time, expect Saudi Arabia and the rest of OPEC+ to do what they can to keep prices elevated. DOEs are delayed until tomorrow due to Memorial Day.
Crude
- ConocoPhillips agreed this morning to buy Marathon Oil in an all-stock transaction worth $17.1 billion to bolster the company’s shale assets.
- This week’s Reuters poll projects EIA crude inventories to decline by 1.9 million barrels.
- Chinese refining rates fell to 14.4 million bpd in April, the slowest pace since December and a 4% decline year-over-year likely due to falling factory strength and low construction-related demand nationwide. GS
- The number of supertankers headed to China fell to the lowest level in seven weeks in mid-May. Bloomberg
- India reported a 7% year-over-year increase in April crude imports.
- As of 8:45 am CST: Brent crude oil up $0.1 to $84.23, US dollar index up $0.226 to 104.765 while the nearby e-mini S&P 500 futures contract is down 44 to 5280.75.
Diesel
- Diesel futures traded at a fresh one-week high in early morning trade.
- Diesel inventory is currently 10.7 million barrels above year-ago levels.
- Resistance of $2.50 will be an important level for lead month HO futures for upside momentum.
Gasoline
- Gasoline inventory is currently 10.5 million barrels above year-ago levels.
- This week's Reuters poll projects EIA crude oil inventories to decline by 1 million barrels.
- NYMEX gasoline net length increased by 251 lots, including 68 longs and a reduction of 183 shorts.
Propane
- Conway is trading at .7225 while Belvieu is trading at .7425.
- Conway Swap Oct24-Mar25 strip indicative midpoint ~.7739.
- Conway propane is trading at 38% to WTI.
Natural Gas
- This week’s Reuters poll projects natural gas in working storage to increase by 73 to 86 BCF.
- The IEA expects Indian natural gas demand to increase by 7% this year.
- Aethon Energy said this morning it would buy Tellurian’s upstream assets for $260 million and signed a deal that could allow the investment firm to purchase two million tons per year of liquified natural gas from Tellurian’s Driftwood LNG plant. (Reuters)
