A Healthy 2 Day Rally In Petroleum Futures Has Wiped Out The Heavy Losses Seen On New Year's Eve

Market TalkTuesday, Jan 4 2022
Pivotal Week For Price Action

A healthy 2 day rally in petroleum futures has wiped out the heavy losses you may or may not have seen on New Year’s eve. US stock markets are also pointing to fresh record highs as optimism about the overwhelming Omicron looks to be taking control.

Now that the downward sloping trend lines that pushed prices lower for 2 months were broken in the last 2 weeks of December, the charts for ULSD prices are looking bullish, with a test of the $2.40 range looking pivotal this week. Already this morning we saw an early run stall out at $2.3968, and $2.4059 marked the high set just before the Black Friday meltdown, so this resistance may not be easily broken, but if it is, the charts suggest we’ll see a run to $2.50 or higher in short order. 

The RBOB charts aren’t quite as bullish as ULSD, but have a similar setup now that the bearish trend-line that saw prices drop 65 cents in 7 weeks has been wiped out. $2.30 looks to be the pivotal level for RBOB, with a break here opening the door for a counter-seasonal rally during the weakest fundamental time of the year.

Refinery hiccups continue to lend support to futures and cash prices, with 2 more gulf coast facilities taking FCC units offline over the past few days, adding to the setback from the 2nd largest plant in the country reducing rates after a fire two weeks ago. While the winter demand doldrums make it unlikely that we’ll see widespread gasoline shortages from this rash of issues, it is another reminder (or, if you prefer, warning) that the supply network is stretched more than it’s been in decades after numerous plant closures in the past 2 years, meaning there’s less cushion for the supply chain to absorb this type of disruption.

Ethanol prices are continuing their return to earth so far this week, with Chicago spots reaching a 2 month low around $2.40/gallon, about $1.35/gallon less than what they were going for at Thanksgiving. New York and LA values still command hefty premiums to the Chicago hub as logistical bottlenecks with railcars and trucks remain, but both are trading more than $1/gallon below where they topped out about a month ago.

RIN values meanwhile have had diverging paths depending on the contracts. After the D4/D6 spread blew out to a record north of 60 cents/gallon in the wake of the EPA’s new RVO suggestions, the gap between bio and ethanol RINs has shrunk dramatically in the past 10 days. Adding to that, there was 20+ cents of backwardation between 2021 and 2022 values for D4s, which has caused a big drop in current year values now that the calendar has flipped. 

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

Market Talk Update 1.4.22

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Pivotal Week For Price Action
Market TalkFriday, Sep 22 2023

Energy Markets Are Ticking Modestly Higher This Morning But Remain Well Off The Highs Set Early Thursday

Energy markets are ticking modestly higher this morning but remain well off the highs set early Thursday following the reports that Russia was temporarily banning most refined product exports.  

The law of government intervention and unintended consequences: Russian officials claim the export ban is an effort to promote market stability, and right on cue, its gasoline prices plummeted a not-so-stable 10% following the news. 

There’s a saying that bull markets don’t end due to bad news, they end when the market stops rallying on good news. It’s possible that if ULSD futures continue lower after failing to sustain yesterday’s rally, or this morning’s, we could be seeing the end of the most recent bull run. That said, it’s still much too soon to call the top here, particularly with a steepening forward curve leaving prices susceptible to a squeeze, and the winter-demand months still ahead of us. Short term we need to see ULSD hold above $3.30 next week to avoid breaking its weekly trend line.

The sell-off in RIN values picked up steam Thursday, with 2023 D4 and D6 values dropping to the $1.02 range before finally finding a bid later in the session and ending the day around $1.07.   

Tropical Storm Ophelia is expected to be named today, before making landfall on the North Carolina coast tomorrow. This isn’t a major storm, and there aren’t any refineries in its path, so it’s unlikely to do much to disrupt supply, but it will dump heavy rain several of the major East Coast markets so it will likely hamper demand through the weekend. The other storm system being tracked by the NHC is now given 90% odds of being named next week, but its predicted path has shifted north as it moves across the Atlantic, which suggests it is more likely to stay out to sea like Nigel did than threaten either the Gulf or East Coasts.

Exxon reported an upset at its Baytown refinery that’s been ongoing for the past 24 hours.  It’s still unclear which units are impacted by this event, and whether or not it will have meaningful impacts on output. Total’s Pt Arthur facility also reported an upset yesterday, but that event lasted less than 90 minutes. Like most upsets in the region recently, traders seem to be shrugging off the news with gulf coast basis values not moving much. 

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

Pivotal Week For Price Action
Market TalkThursday, Sep 21 2023

The Yo-Yo Action In Diesel Continues With Each Day Alternating Between Big Gains And Big Losses So Far This Week

The yo-yo action in diesel continues with each day alternating between big gains and big losses so far this week. Today’s 11-cent rally is being blamed on reports that Russia is cutting exports of refined products effective immediately. It’s been a while since Russian sabre rattling has driven a noticeable price move in energy futures, after being a common occurrence at the start of the war. Just like tweets from our prior President however, these types of announcements seem to have a diminishing shelf-life, particularly given how the industry has adapted to the change in Russian export flows, so don’t be surprised if the early rally loses steam later today. 

The announcement also helped gasoline prices rally 5-cents off of their overnight lows, and cling to modest gains just above a penny in the early going. Before the announcement, RBOB futures were poised for a 5th straight day of losses.

IF the export ban lasts, that would be good news for US refiners that have seen their buyers in south American countries – most notably Brazil – reduce their purchases in favor of discounted barrels from Russia this year

US refinery runs dropped below year-ago levels for the first time in 6 weeks, with PADDS 1, 2 and 3 all seeing large declines at the start of a busy fall maintenance schedule.  Oil inventories continued to decline, despite the drop-in run rates and a big increase in the adjustment factor as oil exports surged back north of 5 million barrels/day. Keep in mind that as recently as 2011 the US only produced 5 million barrels of oil every day, and exports were mostly banned until 2016, so to be sending this many barrels overseas is truly a game changer for the global market.

Chicken or the egg?  Cushing OK oil stocks dropped below year-ago levels for the first time since January last week, which may be caused by the return of backwardation incenting shippers to lower inventory levels, the shift to new WTI Midland and Houston contracts as the export market expands.  Of course, the low inventory levels are also blamed for causing the backwardation in crude oil prices, and the shift to an export market may keep inventories at the NYMEX hub lower for longer as fewer shippers want to go inland with their barrels.

Refined product inventories remain near the bottom end of their seasonal ranges, with a healthy recovery in demand after last week’s holiday hangover helping keep stocks in check.  The biggest mover was a large jump in PADD 5 distillates, which was foreshadowed by the 30 cent drop in basis values the day prior.   The big story for gasoline on the week was a surge in exports to the highest level of the year, which is helping keep inventories relatively tight despite the driving season having ended 2 weeks ago.

As expected, the FED held rates yesterday, but the open market committee also included a note that they expected to raise rates one more time this year, which sparked a selloff in equity markets that trickled over into energy prices Wednesday afternoon. The correlation between energy and equities has been non-existent of late, and already this morning we’re seeing products up despite equities pointing lower, so it doesn’t look like the FOMC announcement will have a lasting impact on fuel prices this time around.

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