A Sideways Summer Trading Pattern

Market TalkFriday, Aug 14 2020
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Oil prices continue to stagnate, holding near five month highs without daring to break out to the upside, while refined products cling to small gains to start the day, comfortably entrenched in their sideways summer trading pattern.

As the forward curve charts below show, physical diesel prices remain in a firm contango as the market deals with a continued overhang of inventory. Gasoline prices meanwhile are seeing only a fraction of the backwardation we’d normally expect this time of year, as excess supply and weak demand have taken out a large portion of the summer/winter RVP spread. 

While futures prices continue to go nowhere in the short term, don’t be fooled into thinking that not much is going on, as there are several remarkable events underway in the industry that could be game changers long term.

See this WSJ article for more detail on the rapid and unprecedented shift to renewable production by traditional oil refineries. In addition, Shell announced it was planning to permanently close one of its Philippine plants due to the COVID demand fallout.

For more on the EPA’s methane ruling that raises the bar for climate change regulations, even though some of the industry’s largest players don’t want that. 

The U.S. seized fuel cargos from four Iranian vessels headed for Venezuela, a new escalation in the sanction battle that at other times has been a shooting battle. It’s hard to remember that earlier this year the U.S./Iranian tensions had some market watchers calling for $100 oil. 

Tropical Storm Josephine was named Thursday, but continues to be forecast as a fish storm that will stay out to sea and not threaten the U.S. coastline. There’s another system that is given 40% odds of forming just off the North Carolina/Virginia coast, but it too is pointed out to sea, so we can rest easy for a few days before the inevitable next wave of potential threats in this record setting storm season.

The EIA this morning reported on the influence of currency price moves on oil imports. The currency/commodity correlation was a major factor in oil prices for years, but had broken down the past several years before returning during the pandemic. 

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

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Market TalkFriday, Jul 19 2024

Summertime-Friday-Apathy Trade Influencing Energy Markets

Energy markets are treading water to start the day as the Summertime-Friday-Apathy trade seems to be influencing markets around the world in the early going. RBOB futures are trying for a 3rd straight day of gains to wipe out the losses we saw to start the week, while ULSD futures continue to look like the weak link, trading lower for a 2nd day and down nearly 3 cents for the week.

Bad to worse: Exxon’s Joliet refinery remains offline with reports that repairs may take through the end of the month. On top of that long delay in restoring power to the facility, ENT reported this morning that the facility has leaked hydrogen fluoride acid gas, which is a dangerous and controversial chemical used in alkylation units. Chicago basis values continue to rally because of the extended downtime, with RBOB differentials approaching a 50-cent premium to futures, which sets wholesale prices just below the $3 mark, while ULSD has gone from the weakest in the country a month ago to the strongest today. In a sign of how soft the diesel market is over most of the US, however, the premium commanded in a distressed market is still only 2 cents above prompt futures.

The 135mb Calcasieu Refinery near Lake Charles LA has been taken offline this morning after a nearby power substation went out, and early reports suggest repairs will take about a week. There is no word yet if that power substation issue has any impacts on the nearby Citgo Lake Charles or P66 Westlake refineries.

Two tanker ships collided and caught fire off the coast of Singapore this morning. One ship was a VLCC which is the largest tanker in the world capable of carrying around 2 million barrels. The other was a smaller ship carrying “only” 300,000 barrels (roughly 12 million gallons) of naphtha. The area is known for vessels in the “dark fleet” swapping products offshore to avoid sanctions, so a collision isn’t too surprising as the vessels regularly come alongside one another, and this shouldn’t disrupt other ships from transiting the area.

That’s (not) a surprise: European auditors have determined the bloc’s green hydrogen goals are unattainable despite billions of dollars of investment, and are based on “political will” rather than analysis. Also (not) surprising, the ambitious plans to build a “next-gen” hydrogen-powered refinery near Tulsa have been delayed.

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

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Market TalkThursday, Jul 18 2024

Refined Products Stanch Bleeding Despite Inventory Builds And Demand Slump

Refined products are trading slightly lower to start Thursday after they stopped the bleeding in Wednesday’s session, bouncing more than 2 cents on the day for both RBOB and ULSD, despite healthy inventory builds reported by the DOE along with a large slump in gasoline demand.

Refinery runs are still above average across the board but were pulled in PADD 3 due to the short-term impacts of Beryl. The Gulf Coast region is still outpacing the previous two years and sitting at the top end of its 5-year range as refiners in the region play an interesting game of chicken with margins, betting that someone else’s facility will end up being forced to cut rates before theirs.

Speaking of which, Exxon Joliet was reportedly still offline for a 3rd straight day following weekend thunderstorms that disrupted power to the area. Chicago RBOB basis jumped by another dime during Wednesday’s session as a result of that downtime. Still, that move is fairly pedestrian (so far) in comparison to some of the wild swings we’ve come to expect from the Windy City. IIR via Reuters reports that the facility will be offline for a week.

LA CARBOB differentials are moving in the opposite direction meanwhile as some unlucky seller(s) appear to be stuck long and wrong as gasoline stocks in PADD 5 reach their highest level since February, and held above the 5-year seasonal range for a 4th consecutive week. The 30-cent discount to August RBOB marks the biggest discount to futures since 2022.

The EIA Wednesday also highlighted its forecast for rapid growth in “Other” biofuels production like SAF and Renewable Naptha and Propane, as those producers capable of making SAF instead of RD can add an additional $.75/gallon of federal credits when the Clean Fuels Producer’s Credit takes hold next year. The agency doesn’t break out the products between the various “Other” renewable fuels, but the total projected output of 50 mb/day would amount to roughly 2% of total Jet Fuel production if it was all turned to SAF, which of course it won’t as the other products come along for the ride similar to traditional refining processes.

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

Pivotal Week For Price Action