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Market Talk - 2024 may

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Market TalkFriday, May 31 2024

US Refiners Ran More Than 17 Million Barrels/Day Last Week For The First Time Since 2019

US Refiners ran more than 17 million barrels/day last week for the first time since 2019. That excess supply hit a market that’s facing sluggish demand and helped force gasoline and diesel prices to fresh multi-month lows Thursday. While prices attempted to bounce back overnight, the charts suggest there’s a good chance we’ll see prices slide another 15-20 cents as we move into June.

Today is the last trading day for June RBOB and ULSD futures, so for the NYH and Group 3 markets that haven’t already transitioned to trading vs July futures, watch the RBN and HON contracts for price direction today.

Refined product prices were already moving lower to start Thursday’s session and then the DOE’s weekly status report pushed prices sharply lower as the higher refinery runs coupled with weak demand estimates for a holiday week to push inventories higher across the country. While we aren’t yet seeing the huge negative basis values that drove several refiners to cut run rates last winter, crack spreads are sliding to their lowest levels of the year, and are approaching break even levels in some markets – particularly in the Midwest.

Even though PADD 5 refinery runs spiked to their highest level of the year last week, LA diesel basis still saw a strong rally following a report of unplanned flaring at PBF’s Torrance refinery Thursday Morning. There are also growing signs that the glut of renewable diesel that has held over the area for most of the year is starting to subside as producers realize they’d rather make money than renewable fuel.

More severe weather is targeting the Houston area this morning, with a large portion of refinery row expected to see at least some thunderstorm activity. While these inland storms don’t have the destructive wind or surge of a hurricane, power outages and flooding are a concern. Already Thursday the P66 Sweeny TX refinery reported multiple units were taken offline following loss of power, but those units were reportedly brought back online in under 6 hours.

Speaking of Hurricanes, the Atlantic Hurricane season officially begins tomorrow, with forecasts calling for the busiest season on record. The positive from yesterday’s report is that US refiners are heading into the season with the most comfortable cushion in terms of capacity and inventories that we’ve seen since 2020, so there is some slack in the supply network to act as a buffer to any storm-related supply disruptions.

OPEC & Friends are meeting this weekend, but only virtually, which is taken as a sign by many that the cartel will simply extend its current output agreement. Meanwhile, a group of US Senators is alleging that the US oil industry has colluded with OPEC to keep oil prices high. This is the same group of Senators that wants to get rid of oil refineries while still having cheap gasoline.

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

Market TalkThursday, May 30 2024

Gasoline Futures Fell To Their Lowest Levels Since February Overnight

Gasoline futures fell to their lowest levels since February overnight, and are once again testing technical support layers that threaten a larger move lower if they break down this week. Diesel and oil prices are also moving lower for a 2nd day, but so far remain safely above the technical trap doors that could lead to sharply lower prices.

A big move lower in equity markets suggests that part of the selling in products may be a “risk off” trade taking hold, even though the correlations between equity and energy markets have been nearly non-existent over the past month, and currency influences are opposite of the normal strong dollar/weak commodity behavior.

The forward curve charts below show how the market has softened over the past month, as concerns of potential supply shortages turned to concerns about supply excess. The most notably change on the curve is in the ULSD contract which continues to slip further into contango, marking the weakest spread in nearly 3 years as a glut of diesel extends across most of the country.

The API reported a large decline in oil inventories of 6.5 million barrels, a small draw in gasoline stocks of around ½ million barrels, while diesel inventories rose by 2 million barrels. The DOE’s weekly report is due out at 10am central today.

There have not been reports of refinery upsets caused by the rash of severe weather that swept the country over the past week, although Chevron did report an upset at its Galena Park (E. Houston) terminal caused by a gasoline leak from a faulty vapor recovery system. At this point, it seems like the week of storms has been more a hindrance to demand as it disrupted holiday travelers and kept farmers that are already delayed in planting activity from returning to their fields.

A Reuters article this morning highlights the challenges ethanol producers have trying to qualify for the $1.25/gallon SAF production credit, in yet another harsh reminder that turning corn into fuel can be more damaging to the environment than the traditional fuels themselves.

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

Market TalkWednesday, May 29 2024

The Texas Power Grid Is Once Again In The Forefront After Another Round Of Storms Left Hundreds Of Thousands Without Power Tuesday

It’s a quiet start to Wednesday’s trading, with refined products up less than a penny in the early going, following a healthy bounce Tuesday that alleviated concerns of a technical price breakdown near term.

A container ship transiting the Red Sea was heavily damaged by a Houthi Missile attack Tuesday. While energy markets continue to shrug off the shipping disruptions caused by those attacks, container ports around the world are feeling its effects and emissions from shipping are increasing along with the longer routes taken to avoid the conflict.

Consolidation continues: Less than a day after Hess shareholders approved its sale to Chevron, Conoco Phillips is reportedly in advanced negotiations to buy Marathon Oil for $22 billion. To avoid confusion, this does not have anything to do with the refining operations at Phillips 66 or Marathon Petroleum, both of which were spun off from their upstream exploration and production companies more than a decade ago. Meanwhile, acquisition activity in the Permian basin remains hotter than drilling activity as Energy Transfer agreed to buy WTG for more than $3 billion.

The Texas power grid is once again in the forefront after another round of storms left hundreds of thousands without power Tuesday. A Reuters article this morning highlights the record setting growth of renewable energy in Texas along with the record use of fossil-based sources to meet the state’s rapid demand increases. This phenomenon isn’t unique to the Lonestar state, with many in the industry believing that electricity demand from AI, Crypto and EV’s will drive the next energy supply squeeze in coming years.

Slowdown coming? The Dallas Fed’s Texas Manufacturing survey showed negative readings on output, new orders and the business conditions outlook in May.

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

Market TalkTuesday, May 28 2024

ULSD Is Leading The Move Higher This Morning With Prices Up Nearly A Nickel In The Early Going

Energy futures are attempting another recovery rally, with products up more than 7 cents from Friday’s early lows, while crude oil contracts have taken back $3/barrel over that time. ULSD is leading the move higher this morning with prices up nearly a nickel in the early going, while RBOB futures are up around 2.5 cents.

Money managers were adding net length in WTI, ULSD and Gasoil contracts last week with both new long positions and heavy short covering. Brent crude was a different story however with speculative net length in the European crude contract slashed by nearly 1/3 with nearly 33,000 new short positions added during the prior week. The big reduction in WTI shorts while Brent shorts are being added suggests the big play by hedge funds may be the WTI/Brent spread rather than bets on outright price movements.

Baker Hughes reported no change in the total oil rig count drilling in the US last week, holding steady at 497 vs 570 a year ago. Natural Gas rigs dropped by 4 on the week, reaching a 2 year low at 99 rigs, down from 137 this time last year. Natural gas prices have staged a big recovery from around $1.50/MMCF a month ago to $2.50 today, but current values are still not high enough to encourage drillers to get more active, particularly with more gas being produced from oil wells.

Deadly storms hit large parts of the country over the Holiday weekend, and continue this morning, but so far no reports of refinery damage from those systems has been reported. Marathon did report an upset in a Residual Hydrotreating unit at its Galveston Bay refinery Friday, but that event doesn’t appear to have slowed down the rest of the facility.

More bad news for US Bio producers: The EIA this morning highlighted the growth in biodiesel imports into the US from Europe – primarily Germany – as changing appetites for renewables and disjointed policies incent more barrels to travel long distances on diesel burning ships to find the highest tax credit value.

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

Market TalkFriday, May 24 2024

Selling Continues In Energy Markets After Thursday's Reversal Rally Ran Out Of Steam In The Afternoon

The selling continues in energy markets after Thursday’s reversal rally ran out of steam in the afternoon, following the lead of U.S. equity markets which had a big sell-off on the day. Prices haven’t yet fallen below the multi-month lows we saw early last week, but we’re just a couple of cents away from those levels, and the potential technical trapdoor that could lead to sharply lower values over the next couple of weeks.

We did see a brief spike in gasoline futures after the settlement Thursday following reports that Colonial had shut down Line 4 due to an IT issue, but those gains were short-lived as the pipeline was restarted without issue a few hours later. Those who remember the chaos of May 2021 after Colonial was hacked are breathing a sigh of relief, particularly on one of the busiest demand days of the year, while others are no doubt disappointed we won’t get to see the rash of fake photos of people filling up plastic bags with gasoline.

OPEC & Friends (AKA the DoC) announced they’re moving June’s policy meeting to a virtual-only affair, which the market is taking as a signal of the status quo being held on output cuts.

Chicago being Chicago: Tuesday’s 60-cent basis spike was officially wiped out by Thursday afternoon, suggesting the short-lived rally was just short covering in an illiquid market rather than a meaningful supply disruption.

RIN values continued their rally this week, touching a 4-month high at 59 cents/RIN for both D4 and D6 values Thursday. If you believe in technical analysis on something like RINs, you can see a “W” pattern formed on the charts, suggesting a run to the 80-cent range is coming if prices can get above 60. If you are more of a fundamentalist, then you’ll probably think this rally is probably more short-term short-covering by producers of RD who have changed their schedule buying back their RIN hedges for volume they’re no longer planning to produce.

NOAA issued its most aggressive Hurricane forecast ever Thursday, joining numerous other groups that think a La Nina pattern and record warm waters will create more and bigger storms this year. With the activity level seeming to be a foregone conclusion at this point, now it’s all about where those storms hit to know if this busy season will be a huge factor in energy supplies like we saw in 2005, 2008, 2012 and 2017. With the Houston area already being bombarded by floods and deadly wind this year, the refinery row across the U.S. Gulf Coast seems even more vulnerable than normal to the effects of a storm.

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