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Pivotal Week For Price Action
Market TalkFriday, Mar 24 2023

Correlation Confusion Between Oil, Stock, And Currency Markets; US Drops Plan to Replenish SPR

Oil prices are leading a slide lower to end the week after the US government walked back plans to buy oil since it’s dropped below $70, and the latest ripples in the banking crisis push stocks lower and the dollar sharply higher after it touched a 2-month low Thursday. 

Even though the correlation between energy prices and stocks or currencies has been weak lately, or even opposite of normal in the case of the dollar, there still seems to be more influence lately as the fear trade has funds flowing back and forth between markets depending on whether or not risk-taking is in style that day. 

The US Energy Secretary told congress that the agency won’t be refilling the SPR this year, despite previous pledges by the White House to buy oil when it dropped to $70, since the agency is still working through congressionally mandates sales of oil from the reserve.  That news seems to be contributing to the downside in WTI and Brent prices as traders hoping to front run the DOE are now going to have to wait a while longer to do so.

Even though ULSD prices are up 17 cents from the lows set last week, they’re still on the verge of their lowest weekly settlement since January of 2022 should prices end the day near current levels. Given that this week’s recovery rally failed to take out the highs seen in previous weeks, charts continue to look bearish for distillates. Another run at $2.50 looks more likely and a break below that level, when the May contract takes the prompt position in another week, may be a foregone conclusion.

As has been the case for most of March, RBOB look as bad as ULSD on the charts, although that certainly isn’t helping so far today with gasoline futures outpacing the losses in diesel.  Unless we see RBOB end the day down a dime or more (it’s down a nickel currently) the weekly trend will still be higher, and the charts will still be giving favor to another push towards $2.80-$3 this spring.

The LA spot market saw a healthy bounce in gasoline basis values Thursday following multiple refinery upsets in the area reported to local regulators. Meanwhile, the California Governors new plan to create an oversight committee to prevent price gouging – a major change from earlier proposals to levy a new tax on oil producers and refiners – passed through the Senate on Thursday. If this new bill is fully passed, it will allow the Governor to appoint that committee himself. A 1,000-page prediction of how that plan will work is available for less than $10 on Amazon.

Click here to download a PDF of today's TACenergy Market Talk.

Pivotal Week For Price Action
Market TalkThursday, Mar 23 2023

FOMC Rate Increase Rocks Equity Markets, Energy Futures Unshaken

Stocks didn’t like the FOMC’s move to increase the fed funds rate by 25 points even as it acknowledged that recent banking developments will weigh on economic activity, or the economic projections that showed inflation expectations moving higher than previously forecast and had their worst day in 2 weeks following those announcements. 

Even though energy and equity markets have seen their correlation strengthen in March following the banking crisis, the drop in equities did little to slow the recovery rally in energy that stretched to a third day Wednesday. We are seeing a more cautious start this morning with both WTI and ULSD seeing modest losses early, while RBOB continues to push higher for a 4th day. 

Gasoline futures are seeming to get a small boost from reports that Monroe was forced to shut an FCC unit at its Trainer PA refinery following a fire Monday. As the charts below show, PADD 1 refinery runs are already at the low end of their seasonal range due to turnaround work at the P66 Bayway facility. Prices to ship products on Colonial have been trading in negative territory lately, and gasoline traders will not want to buy Gulf Coast barrels that have already transitioned to summer grades and bring them to the East Coast that still has a few weeks left to sell winter-grade product, but if this outage is extended, we could see that change next week.

Reports suggest 13% of French fueling stations are tight on supply due to the continuing refinery strikes, with some regions seeing as many as half of their stations out of fuel. The supply disruptions continue to get minimal reaction from global markets with only modest strengthening in time and crack spreads observed so far.  A glut of distillates in Asia, as the Eastern hemisphere deals with an influx of Russian exports (aka the opposite problem the Western hemisphere had last year) is contributing to the lack of reaction to the latest supply disruption.

The EIA reported another 2 million barrels/day of crude oil inventory adjustments last week, while strong exports held domestic inventories steady despite another 14 million barrels being found.  The agency also released its report on its findings for the rapidly growing adjustment, and its plan to update its weekly survey to help the data make more sense. The report admits that the agency has been inadvertently overstating domestic petroleum consumption, by counting light hydrocarbons and unfinished oils blended into crude as if they’ve been used by consumers, which explains the “record high” total demand even while refined products have seen declines in their figures.

Both gasoline and diesel demand did see healthy increases last week, marking a 2nd straight week of improving numbers for both. Diesel consumption is still at the low end of its seasonal range despite two weeks of growth in the EIA’s estimates, while gasoline is just below its 5-year average for this time of year. Retail prices for both are now approaching $1/gallon less than they were a year ago, which should help give a boost to consumption as we move further into spring.

PADD 5 refinery runs saw another healthy increase last week, and a tick up in imports, both of which might help explain the big declines in gasoline and diesel basis values we’ve seen in the past two weeks.  In addition, Wednesday saw a pipeline deal for RD99 executed in the LA market, which will certainly be the first of many as that rapidly increasing supply comes to market. ULSD values did recover from Tuesday’s attempt to liquidate with no liquidity that briefly pushed values down a theoretical 45 cents for the day, although prompt values are still going for 20+ cent discounts to April futures.

The EIA did not yet report Exxon’s 250,000 barrel/day expansion at its Beaumont facility, even though those units have been running for several weeks now. The facility did report an upset in a hydrocracker unit Wednesday, although the impact of that event is still unclear.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.

Pivotal Week For Price Action
Market TalkWednesday, Mar 22 2023

Energy Futures Mixed Ahead Of DOE Report And Fed Announcement

Energy futures were calmly waiting on the FED’s 1pm announcement, like many markets around the world, with small and mixed results overnight. Diesel started to make a more meaningful rally attempt as we approach 8am central, moving higher for a 5th straight session, with stronger spreads signaling that refinery disruptions in Europe may finally be having some impact on prices now that most of the banking fears seem to have subsided.   

The CME’s Fedwatch tool shows that expectations for a rate increase have risen in the past week, with just 10% betting the FED will hold rates steady today compared to 45% a week ago when the banking crisis was stirring all sorts of fears.  It’s worth noting that there’s a 60% probability that the FED will raise rates by 50 points over the next 3 meetings, then 50% odds that rates will end up lower than they are now by the end of the year. 

The API estimated gasoline stocks dropped by 1 million barrels last week, while diesel declined by 1.8 million. Crude oil inventories increased by 3.2 million barrels on the week as production held steady near 12.2 million barrels/day. The EIA’s weekly report is due out at its normal time this morning. The agency is still struggling to get a consistent and accurate tally on crude oil inventories due to the growing impact of condensate production on both inventory and export readings. We should also see the largest increase in refinery capacity reported today after Exxon officially brought its new 250mb/day units online at Beaumont TX last week.

France is attempting to requisition refinery workers to get them back on the job and get energy supplies flowing again. After 2 weeks of strikes, the impacts on diesel and crude prices are starting to appear, albeit in much less dramatic fashion than we saw last fall. Both time spreads and crack spreads for diesel have been marching higher over the past week but remain just a fraction of what we saw last year.

The last day of March pipeline trading brought fireworks in the LA spot market Wednesday with a seller of EPA ULSD #2 trapped without any buyers and offering prices all the way down to a 50 cent/gallon discount to futures without a trade ever getting done. Meanwhile multiple bidders for CARB ULSD #2 appeared but no offers at the suddenly huge discounts appeared, leaving the market dislocated, and those making price assessments grasping for straws.   

April cycles should bring more liquidity, and many traders will be returning to the office following the annual AFPM (RIP NPRA) conference, so we should get a better feel for reality today. That said, more big swings are possible however as pipeline space to bring barrels east from LA is maxed out and a scramble for CBG gasoline to supply Phoenix taking up much more capacity than normal due to refinery downtime in other markets may leave diesel stuck at its origin points and put downward pressure on spot prices for the next month or so. The good news for consumers on the West Coast is that wholesale diesel prices are now down more than $2/gallon from where they were 6 months ago, which should help alleviate some of the pain they were feeling last year when retail values surged north of $6.

Click here to download a PDF of today's TACenergy Market Talk.

Market Talk Updates - Social Header
Market TalkTuesday, Mar 21 2023

Energy Prices Mixed As Markets Await Fed Announcement And Ongoing Banking Saga

After a volatile start to the week, energy prices are mixed in the early going Tuesday as markets around the world await the next move from the FED tomorrow, and wonder if another shoe is about to drop in the latest banking saga. Monday’s big bounce for refined products and crude oil could mark the end of the harsh fear-driven sell-off, but at this point, it seems like many traders are going to wait and see what happens tomorrow before making bigger bets on a recovery rally.

The market seems to have talked itself into the fact that the FED will raise rates again tomorrow, but only by 25 points, as they try to balance the war on inflation with the need to soothe fears of a banking crisis. Yesterday the CME’s Fed-watch tool showed a 74% chance of a 25-point increase, and today that’s jumped up to 89%. A month ago, 24% of bets were on a 50-point increase, but that’s dropped to zero thanks to the run on banks over the past 2 weeks.

California gasoline basis values had dropped 70 cents/gallon so far in March, but LA values saw a 10-cent bounce on Monday, coinciding with reports of another upset at Chevron’s El Segundo facility. Racks across the South West stretching from El Paso to Phoenix meanwhile have seen huge premiums for prompt in tank barrels, or space on the lines to supply them, as multiple refineries are struggling to resume rates after maintenance, and the boutique grades of gasoline required in those markets makes resupply much more challenging.

French refinery strikes continue to escalate with police firing teargas at protesters near an Exxon refinery, which doesn’t seem particularly safe, and the government reporting it had begun tapping strategic fuel reserves to try and keep retail stations supplied during the disruptions.

Last week the EIA highlighted the record-setting amount of oil exports from the US in 2022 and noted the changing flows due to Russian sanctions. This week, a WSJ note shows how the resumption of Chinese demand is causing tanker rates to spike, and may be hinting at a reason for prices to rally again once the banking fears subside.

Click here to download a PDF of today's TACenergy Market Talk.

Market Talk Updates - Social Header
Market TalkMonday, Mar 20 2023

Volatility And Uncertainty Continue Dominant Market Themes After Weekend Of Extraordinary Intervention By Central Banks

Volatility and uncertainty continue to be the dominant market themes after another weekend of extraordinary intervention by central banks to try and limit the fallout of the latest crisis of confidence in the system. 

We’ve already seen big swings in both energy and equity markets in the overnight sessions.  Bulls seem to be arguing that the coordinated actions by central banks and some of the world’s largest financial institutions are proving there will not be a liquidity crisis, while the bears seem to be saying, “If everything is fine, why did two of Europe’s largest banks just get forced into a shotgun wedding?”

Refined product prices dropped 9 cents at their lowest levels, but have since wiped out those losses and turned to modest gains in yet another sign of the choppy action that’s likely in the days ahead. WTI meanwhile set a fresh 15-month low before recovering most of its losses on the day, and charts suggest we could soon see prices in the $50 range if a recovery rally doesn’t come soon.

The CFTC announced Friday it was further delaying its Commitments of Traders reports as it needed to review the data after the cyber-attack that took out a service provider and has kept the position reporting at least 3 weeks behind schedule since early February. ICE continues to publish its weekly COT data on a normal schedule, and showed money managers bailing out of long positions in Brent and Gasoil contracts last week as prices plummeted, and a large amount of new speculative money came in to bet that prices would continue to fall, even though they’re already at 15-month lows. Given the price action we’ve seen in NYMEX contracts the past two weeks, it’s not hard to imagine a similar liquidation of long positions has been going on here as well.

Fed Fund futures traders are laying 37% odds the FOMC will stop their rate hikes this week, while 63% think they’ll continue to increase rates by 25 points according to the CME’s Fed watch tool. Two weeks ago, literally, no money was bet on the FED holding steady. The forward outlook shows that nearly 30% of the money is betting the FOMC will be lowering rates by the June meeting, compared to 0% betting that direction a month ago.

Baker Hughes reported US Oil rigs dropped by 1 last week to a new 9-month low, while natural gas rigs jumped by 9, setting a new 6-month high. That dichotomy was most obvious in the Eagle Ford basin where 6 oil rigs were taken offline, while 4 new gas rigs were added. The Marcellus shale accounted for the remainder of the increase in gas rigs, while the Permian saw a healthy increase of 5 oil rigs negated by the drop elsewhere.

Both Flint Hills and Citgo reported upsets at their Corpus Christi refineries Friday, following the cold front that battered the region with high winds and heavy rain Thursday. The filings made to the TCEQ suggest Citgo may have been forced to take an FCC unit offline, while FHR may have avoided any unit shutdowns during their event. Neither issue is likely to have much influence on Gulf Coast spot markets since Corpus Christi plants don’t touch the Colonial pipeline origin hubs, but they could create product tightness along the San Antonio, Austin, and DFW corridor if they continue.

More French refinery workers are walking off the job this week after pension reforms were passed by parliament last week. The impact of the protests may now turn from a nuisance to a more serious disruption as more facilities are expected to be taken offline.  

A worker at the CVR refinery in Coffeyville Kansas was killed over the weekend, as that facility was undergoing planned maintenance. No reports yet as to the cause of that incident, or the potential long-term impact.

Click here to download a PDF of today's TACenergy Market Talk Update.