A Strong Start To July

Market TalkThursday, Jul 1 2021
Pivotal Week For Price Action

It’s a strong start to July with refined products rallying more than a nickel in the early going, and crude oil prices reaching fresh 2.5 year highs. The OPEC meeting is underway and will likely create some volatility today as rumors start trickling out of the meeting ahead of the official announcement. 

Tropical storm Elsa has formed in the Atlantic, and looks like it will hit Florida early next week. It’s still early in the season so the waters haven’t reached their warmest levels yet which should keep this storm from reaching hurricane strength. The forecast cone currently keeps the storm east of the oil refining and production region of the Gulf of Mexico, and if that holds, this should not be a supply threat beyond some headaches in the ports as the storm passes. 

Wednesday’s DOE report added to the bullish sentiment for oil as US inventories saw another large decline, a 6th straight week of falling inventories, and one of the largest monthly declines on record. Total US Petroleum demand climbed for a third straight week and is holding above its seasonal average for this time of year. The exception in the report was gasoline, which saw a drop in the weekly demand estimate and a build in inventories. The DOE also reduced its gasoline demand estimates from the spring in its latest monthly update, although that’s done little to stop the rally as RBOB futures just reached their highest level in nearly 7 years in the past few minutes.

The exception to the weaker gasoline fundamentals is the PADD 4, which has by far the fewest people and thus the least amount of gasoline of the districts and is typically ignored in the weekly statistics given its volume amounts to a rounding error. This week however it could be the canary in the coal mine for the industry as it deals with the resumption in demand following so many refinery closures in the past year. Regional inventories have dropped to their lowest levels in nearly a decade as Colorado’s sole refinery struggles through a turnaround, and 2 of the main backup options nearby are no longer operating as oil refineries.

RINs have been uncharacteristically quiet the past couple of days after the Supreme Court ruling rippled through the market Friday and Monday. That relative lack of volatility may not last long however as grain prices saw a strong rally following the USDA’s crop report which showed fewer acres planted than many reports expected, setting the stage for stronger values in the back half of the week.

Abandoning ship: Shell continues to shed assets, with a sale of its share in a California production JV coming according to a new Reuters report. Meanwhile, Chevron is looking to sell some of its stake in the Permian, which should provide a good test of the new theory that US producers are showing discipline in their spending even now that prices are near 3 year highs pushing companies back into the black.

The EIA this morning published a note highlighting that non-fossil fuel sources reached 21% of total energy consumption in the US last year, the highest levels in more than a century, when wood was the renewable energy of choice. The report does point out that Nuclear power remains the largest non-fossil fuel category by usage, while petroleum’s share has held relatively steady the past several years. Those various sources of energy are facing multiple tests this week as temperatures & electricity usage have surged from coast to coast.  

Another EIA report yesterday highlighted vulnerable areas of the country’s power grid this summer, with the majority of the country listed as an elevated or high risk of outage. New York was one of the relatively few states given a low risk status in the report, and right on cue, government officials are calling for conservation this week as the heat wave is giving their grid a tough test.

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

TACenergy Market Update 070121

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Pivotal Week For Price Action
Market TalkFriday, Apr 19 2024

Gasoline Futures Are Leading The Way Lower This Morning

It was a volatile night for markets around the world as Israel reportedly launched a direct strike against Iran. Many global markets, from equities to currencies to commodities saw big swings as traders initially braced for the worst, then reversed course rapidly once Iran indicated that it was not planning to retaliate. Refined products spiked following the initial reports, with ULSD futures up 11 cents and RBOB up 7 at their highest, only to reverse to losses this morning. Equities saw similar moves in reverse overnight as a flight to safety trade soon gave way to a sigh of relief recovery.

Gasoline futures are leading the way lower this morning, adding to the argument that we may have seen the spring peak in prices a week ago, unless some actual disruption pops up in the coming weeks. The longer term up-trend is still intact and sets a near-term target to the downside roughly 9 cents below current values. ULSD meanwhile is just a nickel away from setting new lows for the year, which would open up a technical trap door for prices to slide another 30 cents as we move towards summer.

A Reuters report this morning suggests that the EPA is ready to announce another temporary waiver of smog-prevention rules that will allow E15 sales this summer as political winds continue to prove stronger than any legitimate environmental agenda. RIN prices had stabilized around 45 cents/RIN for D4 and D6 credits this week and are already trading a penny lower following this report.

Delek’s Big Spring refinery reported maintenance on an FCC unit that would require 3 days of work. That facility, along with several others across TX, have had numerous issues ever since the deep freeze events in 2021 and 2024 did widespread damage. Meanwhile, overnight storms across the Midwest caused at least one terminal to be knocked offline in the St. Louis area, but so far no refinery upsets have been reported.

Meanwhile, in Russia: Refiners are apparently installing anti-drone nets to protect their facilities since apparently their sling shots stopped working.

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

Pivotal Week For Price Action
Market TalkThursday, Apr 18 2024

The Sell-Off Continues In Energy Markets, RBOB Gasoline Futures Are Now Down Nearly 13 Cents In The Past Two Days

The sell-off continues in energy markets. RBOB gasoline futures are now down nearly 13 cents in the past two days, and have fallen 16 cents from a week ago, leading to questions about whether or not we’ve seen the seasonal peak in gasoline prices. ULSD futures are also coming under heavy selling pressure, dropping 15 cents so far this week and are trading at their lowest level since January 3rd.

The drop on the weekly chart certainly takes away the upside momentum for gasoline that still favored a run at the $3 mark just a few days ago, but the longer term up-trend that helped propel a 90-cent increase since mid-December is still intact as long as prices stay above the $2.60 mark for the next week. If diesel prices break below $2.50 there’s a strong possibility that we see another 30 cent price drop in the next couple of weeks.

An unwind of long positions after Iran’s attack on Israel was swatted out of the sky without further escalation (so far anyway) and reports that Russia is resuming refinery runs, both seeming to be contributing factors to the sharp pullback in prices.

Along with the uncertainty about where the next attacks may or may not occur, and if they will have any meaningful impact on supply, come no shortage of rumors about potential SPR releases or how OPEC might respond to the crisis. The only thing that’s certain at this point, is that there’s much more spare capacity for both oil production and refining now than there was 2 years ago, which seems to be helping keep a lid on prices despite so much tension.

In addition, for those that remember the chaos in oil markets 50 years ago sparked by similar events in and around Israel, read this note from the NY Times on why things are different this time around.

The DOE’s weekly status report was largely ignored in the midst of the big sell-off Wednesday, with few noteworthy items in the report.

Diesel demand did see a strong recovery from last week’s throwaway figure that proves the vulnerability of the weekly estimates, particularly the week after a holiday, but that did nothing to slow the sell-off in ULSD futures.

Perhaps the biggest next of the week was that the agency made its seasonal changes to nameplate refining capacity as facilities emerged from their spring maintenance.

PADD 2 saw an increase of 36mb/day, and PADD 3 increased by 72mb/day, both of which set new records for regional capacity. PADD 5 meanwhile continued its slow-motion decline, losing another 30mb/day of capacity as California’s war of attrition against the industry continues. It’s worth noting that given the glacial pace of EIA reporting on the topic, we’re unlikely to see the impact of Rodeo’s conversion in the official numbers until next year.

Speaking of which, if you believe the PADD 5 diesel chart below that suggests the region is running out of the fuel, when in fact there’s an excess in most local markets, you haven’t been paying attention. Gasoline inventories on the West Coast however do appear consistent with reality as less refining output and a lack of resupply options both continue to create headaches for suppliers.

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