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Market Talk - 2024 february

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Market TalkThursday, Feb 29 2024

It's Another Mixed Start For Energy Futures This Morning After Refined Products Saw Some Heavy Selling Wednesday

It's another mixed start for energy futures this morning after refined products saw some heavy selling Wednesday. Both gasoline and diesel prices dropped 7.5-8.5 cents yesterday despite a rather mundane inventory report. The larger-than-expected build in crude oil inventories (+4.2 million barrels) was the only headline value of note, netting WTI futures a paltry 6-cent per barrel gain on the day.

The energy markets seem to be holding their breath for this morning’s release of the Personal Consumption Expenditures (PCE) data from the Bureau of Economic Analysis (BEA). The price index is the Fed’s preferred inflation monitor and has the potential to impact how the central bank moves forward with interest rates.

Nationwide refinery runs are still below their 5-year average with utilization across all PADDs well below 90%. While PADD 3 production crossed its 5-year average, it’s important to note that measure includes the “Snovid” shutdown of 2021 and throughput is still below the previous two years with utilization at 81%.

We will have to wait until next week to see if the FCC and SRU shutdowns at Flint Hills’ Corpus Christi refinery will have a material impact on the regions refining totals. Detail on the filing can be found on the Texas Commission on Environmental Quality website.

Update: the PCE data shows a decrease in US inflation to 2.4%, increasing the likelihood of a rate cut later this year. Energy futures continue drifting, unfazed.

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

Market TalkWednesday, Feb 28 2024

It’s Red Across The Board For Energy Prices So Far This Morning With The ‘Big Three’ Contracts All Trading Lower To Start The Day

It’s red across the board for energy prices so far this morning with the ‘big three’ contracts (RBOB, HO, WTI) all trading lower to start the day. Headlines are pointing to the rise in crude oil inventories as the reason for this morning’s pullback, but refined product futures are leading the way lower, each trading down 1% so far, while the crude oil benchmark is only down around .3%.

The American Petroleum Institute published their national inventory figures yesterday afternoon, estimating an 8+ million-barrel build in crude oil inventory across the country. Gasoline and diesel stocks are estimated to have dropped by 3.2 and .5 million barrels last week, respectively. The official report from the Department of Energy is due out at its regular time this morning (9:30 CST).

OPEC’n’friends are rumored to be considering extending their voluntary production cuts into Q2 of this year in an effort to buoy market prices. These output reductions, reaching back to late 2022, are aimed at paring back global supply by about 2.2 million barrels per day and maintaining a price floor. On the flip side, knowledge of the suspended-yet-available production capacity and record US output is keeping a lid on prices.

How long can they keep it up? While the cartel’s de facto leader (Saudi Arabia) may be financially robust enough to sustain itself through reduced output indefinitely, that isn’t the case for other member countries. Late last year Angola announced it will be leaving OPEC, freeing itself to produce and market its oil as it wishes. This marks the fourth membership suspension over the past decade (Indonesia 2016, Qatar 2019, Ecuador 2020).

The spot price for Henry Hub natural gas hit a record low, exchanging hands for an average of $1.50 per MMBtu yesterday. A rise in production over the course of 2023 and above average temperatures this winter have pressured the benchmark to a price not seen in its 27-year history, much to Russia’s chagrin.

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

Market TalkTuesday, Feb 27 2024

The Latest Warmer-Than-Expected Winter Has Driven Natural Gas Prices To The Lowest Level Seen Since The NG Futures

It’s a mixed bag for energy futures so far this morning with RBOB and prompt month WTI trading slightly higher while HO and Brent futures drift lower. A potential ceasefire in Gaza, continued shipping strife in the Red Sea, and attempts to avoid a partial government shutdown are what the markets are watching this morning. Material developments on any of those three fronts might be enough for prices to decide what they want to do today.

The Kremlin has announced a ban on gasoline exports that will last for six months, earlier this morning, in order to combat domestic fuel shortages and high pump prices. The announcement comes on the heels of repeated Ukrainian drone attacks on Russian refineries, the resulting downtime from which cut throughput rates by an estimated 380,000 barrels per day.

The EIA published a comprehensive article this morning detailing all-things-RINs and why they’ve cratered since the beginning of the year. While the administration breaks down the effects of feedstock prices and projects a consistent increased in renewable diesel production, there are no quips about what, if any, changes might be coming for the Renewable Fuel Standard.

The latest warmer-than-expected winter has driven natural gas prices to the lowest level seen since the NG futures contract began trading back in 1990. The increased oil production, of which natural gas is a byproduct, has flooded the market, often resulting in voluntary disposal of excess through the process called flaring. This is great news for consumers, bad news for producers who are forced to cut production, which succeeded in buoying prices, albeit temporarily.

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

Market TalkMonday, Feb 26 2024

Traders Are “Mulling” Ahead Of What Seems To Be A Quiet Start To The Week

Refined product futures are trading slightly higher this morning with the prompt month distillate contract adding 2 cents to start the day and gasoline trading higher by about a penny. WTI and Brent futures are trading just on the red side of flat with a lack of headlines to push any inspired trading. Persistent inflation and a robust American economy are reported to be the factors traders are “mulling” ahead of what seems to be a quiet start to the week.

Money managers placed their bullish bets on American crude oil prices last week, adding new long positions while cutting existing shorts. The opposite is seen in refined products, however, as the ‘smart money’ added new short interest in both RBOB and HO, dropping their total net position in both contracts. Of note: the open interest in the WTI Midland contract, which began trading in 2018, hit a new all time high last week, but the speculative funds seems to be keeping away with the other category of traders making up the vast majority of positions held.

Congressional leaders are being called to the White House this week as Biden attempts to make some sort of headway in avoiding a partial government shutdown Friday. In addition to the Ukrainian Aid Package, funding for several agencies and programs are up for vote. There could be material economic impact if a consensus is not reached.

Baker Hughes reported a net increase of six oil production platforms last week, two of which came online in the Permian Basin region.

RIN prices continued to slide last week with both the D6 and D4 falling to ~$.40 per credit. There is little on the horizon to suggest this trend won’t continue, barring any mandate changes from the feds.

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

Market TalkFriday, Feb 23 2024

The DOE Report Sparked A Solid Rally In Energy Futures Thursday, But That Upward Momentum Proved Short-Lived

The DOE report sparked a solid rally in energy futures Thursday, but that upward momentum proved short-lived as prices gave back those gains overnight, despite US equity markets surging to all-time highs.

The weekly inventory report showed US refiners are struggling to come back online from a busy maintenance season that was further complicated by January’s cold snap and the unexpected shut down at BP Whiting. Refinery utilization held near 80% on the week, which helped pull gasoline inventories lower despite sluggish demand and a surge in imports along the East Coast. Diesel demand showed a big recovery from last week’s ugly estimate, and when you factor in the missing 4-5% that doesn’t show up due to RD not being included in the reports, actual consumption looks much healthier than the report suggests.

Based on reports of restarts at several major refineries this week, we should see those utilization numbers pick up in next week’s report.

The EPA Thursday approved year-round E15 sales in 8 corn-growing states, despite the fact that the extra ethanol blends have been shown more to pollute more in the warm times of the year. The effective date was pushed back a year however in a show of election-year tight rope walking, which the EPA couched as ensuring that the move wouldn’t lead to a spike in fuel prices this summer.

Of course, the law of unintended consequences may soon be at play in a region that tends to be long gasoline supply for large parts of the year. Removing 5% of the gasoline demand could be another nail in some of the smaller/less complex refineries’ coffins, which would of course make fuel supply less secure, which contradicts one of the main arguments for making more 198 proof grain alcohol and selling it as fuel. Ethanol prices meanwhile continue to slump to multi-year lows this week as low corn prices continue to push unusually high production, and the delayed effective date of this ruling won’t help that.

While Nvidia’s chip mania is getting much of the credit for the surge in equity prices this week, there was also good news for many more companies in reports that the SEC was planning to drop its requirements on Scope 3 emissions reporting which is particularly useful since most people still can’t figure out what exactly scope 3 emissions really are.

In today’s segment of you can’t make this stuff up: The case of chivalry gone wrong with the BP/TA acquisition, and a ketchup caddy company caught spoofing electric capacity.

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