A Strong Start And Weak Finish Sets The Stage
A strong start and weak finish Tuesday set the stage for a technical selloff in both energy and equity markets, as the recent bull rally seemed to run out of steam. Reversal bars on the daily charts after WTI flirted with a five-month-high and the S&P 500 came close to a new record high only to end lower on the day, suggested we may be due for a heavy round of selling. Instead, both asset classes are moving higher again to start Wednesday’s session, with bullish inventory figures seeming to help NYMEX futures erase yesterday’s losses and diminish the technical threat.
The API was said to report inventory draws across the board last week, with crude stocks down 4.4 million barrels, diesel down 2.9 million barrels and gasoline lower by 1.3 million barrels. The DOE’s weekly report will be out at its normal time this morning.
Any bullish sentiment from the weekly inventory data is being held in check by more bearish outlooks from the EIA and OPEC monthly reports.
OPEC’s monthly oil market report lowered expectations for global economic activity and oil demand, while increasing its forecast for supplies. OPEC’s production increased by nearly one million barrels/day on the month as the carte’s output cut agreements started to ease. The report also noted the lack of investment flows into the oil markets in recent months, while Gold and other commodities have seen record setting action.
The EIA’s Short term energy outlook painted an uncertain picture, as it has the past several months, and noted how July prices stagnated as the demand recovery battled to a stalemate with the threat of additional COVID shutdowns.
The August report used a smaller reduction in U.S. GDP than the July report, but despite that relative improvement, the forecast suggests that U.S. energy consumption in 2021 will still be lower than in 2019, as the COVID recovery is expected to stretch further into the future.
One notable item from the report is that the price curve for Oman crude flipped from backwardation to contango in the last two weeks of July, suggesting that Asian refinery runs – particularly in China – have slowed, while Middle Eastern production comes back online.
The latest in a long line of renewable diesel projects planned for 2022 was announced Tuesday as an alliance that will see ExxonMobil buying the output from the refinery in Bakersfield, CA that’s being retooled for RD production. This is at least the fourth traditional refinery being converted to RD production that’s been discussed in recent weeks, and given the state of environmental rules and weak refinery margins, it’s likely not going to be the last.
Click here to download a PDF of today's TACenergy Market Talk.
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Week 16 - US DOE Inventory Recap
Energy Markets Trading Quietly In The Red As Ethanol Prices Rally To Five-Month High
Energy markets are trading quietly in the red to start Wednesday’s session after a healthy bounce Tuesday afternoon suggested the Israel-Iran-linked liquidation had finally run its course.
There are reports of more Ukrainian strikes on Russian energy assets overnight, but the sources are sketchy so far, and the market doesn’t seem to be reacting as if this is legitimate news.
Ethanol prices have rallied to a 5-month high this week as corn and other grain prices have rallied after the latest crop progress update highlighted risks to farmers this year, lower grain export expectations from Ukraine, and the approval of E15 blends this summer despite the fact it pollutes more. The rally in grain and renewables prices has also helped RIN values find a bid after it looked like they were about to test their 4-year lows last week.
The API reported small changes in refined product inventories last week, with gasoline stocks down about 600,000, while distillates were up 724,000. Crude oil inventories increased by 3.2 million barrels according to the industry-group estimates. The DOE’s weekly report is due out at its normal time this morning.
Total reported another upset at its Port Arthur refinery that’s been a frequent flier on the TCEQ alerts since the January deep freeze knocked it offline and damaged multiple operating units. This latest upset seems minor as the un-named unit impacted was returned to normal operations in under an hour. Gulf Coast basis markets have shrugged off most reports of refinery upsets this year as the region remains well supplied, and it’s unlikely we’ll see any impact from this news.
California conversely reacted in a big way to reports of an upset at Chevron’s El Segundo refinery outside of LA, with CARBOB basis values jumping by more than a dime. Energy News Today continued to show its value by reporting the upset before the flaring notice was even reported to area regulators, proving once again it’s ahead of the curve on refinery-related events. Another industry news outlet meanwhile struggled just to remember where the country’s largest diesel seller is located.
Click here to download a PDF of today's TACenergy Market Talk
The Struggle For Renewable Producers Continues As A Rapid Influx Of Supply And Crashing Credit Prices Make Biodiesel
The sigh of relief selloff continues in energy markets Tuesday morning, with gasoline prices now down more than 20 cents in 7 sessions, while diesel prices have dropped 26 cents in the past 12. Crude oil prices are within a few pennies of reaching a 1 month low as a lack of headlines from the world’s hot spots allows some reflection into the state of the world’s spare capacity for both oil and refined products.
Gasoline prices are trading near a 6-week low this morning, but still need to fall about another nickel in order to break the weekly trendline that pushed prices steadily higher since December. If that trend breaks, it will be safer to say that we saw the end of the spring gasoline rally on April 12th for the 2nd year in a row. Last year RBOB futures peaked on April 12 at $2.8943 and bottomed out on May 4th at $2.2500. The high (at this point) for this year was set on April 12th at $2.8516, and the low overnight was $2.6454.
It’s not just energy commodities that are seeing an unwind of the “flight to safety” trade: Gold prices had their biggest selloff in 2 years Monday and continue to point lower today. Just how much money poured into commodities in the weeks leading up to the direct confrontation between Israel and Iran is unclear, but we have seen in year’s past that these unwind-events can create a snowball effect as traders can be forced to sell to cover their margin calls.
Supply > Demand: The EIA this morning highlighted the record setting demand for natural gas in the US last year, which was not nearly enough to offset the glut of supply that forced prices to a record low in February. A shortage of natural gas in Europe was a key driver of the chaotic markets that smashed just about every record in 2022, and an excess of natural gas supply in Europe and the US this year is acting as a buffer, particularly on diesel prices.
The struggle for renewable producers continues as a rapid influx of supply and crashing credit prices make Biodiesel, RD and SAF unprofitable for many. In addition to the plant closures announced in the past 6 months, Vertex Energy reported Monday it’s operating its Renewable Diesel facility in Mobile AL at just 50% of capacity in Q1. The truly scary part for many is that the $1/gallon Blender's tax credit ends this year and is being replaced by the “Clean” Fuel production credit that forces producers to prove their emissions reductions in order to qualify for an increased subsidy. It’s impossible to say at this point how much the net reduction will be for domestic producers, but importers will get nothing, and at current CI values, many biodiesel producers may see their “blend credit” cut by more than half.
Click here to download a PDF of today's TACenergy Market Talk.