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.

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TACenergy Market Update 070121

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Pivotal Week For Price Action
Market TalkFriday, Dec 2 2022

The Energy Complex Is Trading Mostly Lower So Far This Morning

The energy complex is trading mostly lower so far this morning, with prompt month RBOB futures leading the way. Brent crude oil is struggling to hold on to overnight gains and it is exchanging hands on the green side of even, if only just.

The easing of quarantine protocols in China is taking partial credit for the weekly gain in WTI futures this morning, despite the emergence of reports and images showing provisional camps set up to enforce isolation and curb the latest spread of the pandemic.

The “ban” on Russian crude oil, set to take effect on Monday, has yet to reach final approval in Europe. Poland seems to be one of the last holdouts and has not been shy about wanting the price cap to be as low as possible.

Sunday’s OPEC+ meeting, which will reportedly be held virtually, is also getting some play in the headlines this morning. While some consider the setting of the meeting to telegraph no change in the cartel’s production policy, others posit the group is considering cuts ahead of next week’s oil ban.

The Bureau of Labor Statistics published the November jobs report this morning, an increase in nonfarm payrolls of 263,000 while unemployment rate held pat at 3.7%. The stock market did not like that: S&P 500 futures dropped 1.4% on the news as traders expect higher-than-expected job growth to buttress the Fed’s intent on continuing to raise interest rates.

The EPA published their proposed volume obligations under the Renewable Fuel Standard for the next three years and is now seeking public opinion on their target levels. Their report also estimates that the RIN obligations will reduce US oil imports by ~170,000 barrels per year. Is that a typo? We imported 6 million barrels per day last week, for reference.

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

Pivotal Week For Price Action
Market TalkThursday, Dec 1 2022

December Trading Is Kicking Off With Modest Gains For Energy Contracts

December trading is kicking off with modest gains for energy contracts after a strong finish to November helped the complex avoid a technical breakdown.  

Equity markets saw another big rally Wednesday after the FED chair suggested that smaller rate hikes were coming. The correlation between energy and equity markets remains weak, so it doesn’t seem like that’s having much influence on daily pricing, but it certainly doesn’t hurt the case for a recovery rally.  New reports that China may ease some lockdowns in the wake of last weekend’s protests is also getting some credit for the strength in prices after they reached 11 month lows on Monday.

The DOE’s weekly report had something for everyone with crude oil stocks showing some bullish figures while refined product supplies got some much-needed relief.

US Crude oil inventories saw a huge drop of more than 12 million barrels last week thanks to a surge in exports to the 3rd highest level on record, a drop in imports, and the SPR sales that have been supplementing commercial supplies for the past 6 months wind down. The market reaction was fairly muted to the big headline drop, which is probably due to the inconsistent nature of the import/export flows, which are likely to reverse course next week. The lack of SPR injections will be a key figure to watch through the winter, particularly as the Russian embargo starts next week.

Diesel inventories increases across all 5 PADDs last week, as demand dipped again and imports ticked higher. Diesel exports remain above average, and are expected to continue that pace in the near term as European and Latin American buyers continue to be short. Read this note for why in the long term more of those supplies will probably come from China or Kuwait

US refiners continue to run all-out, with total throughput last week reaching its highest level since the start of the pandemic, even though we’ve lost more than 600,000 barrels/day of capacity since then. Those high run rates at a time of soft demand help explain why we’re seeing big negative basis values at the refining hubs around the country and if the pipeline and vessel outlets can’t keep pace to move that product elsewhere we may see those refiners forced to cut back due to lack of storage options.

The EPA was required by court order to submit its plans for the renewable fuel standard by November 16, and then came to an agreement to release them on November 30, and then apparently decided to meet that deadline, but not release the plan to the public. If you think this is ridiculous, you’re not alone, but keep in mind this is the same agency that regularly missed the statutory deadline by more than a year previously, so it’s also not too surprising. This is also the law that required 16 billion gallons/year of cellulosic biofuels be blended by 2022 when it was put into place 15 years ago, only to run into a wall of physical reality where the country is still unable to produce even 1 billion gallons/year of that fuel. 

There are still expectations that the public may get to see the proposed rulings later this week, and reports that renewable electricity generation will be added to the mix for the first time ever starting next year. RIN prices were pulling back from the 18 month highs they reached leading up to the non-announcement as it seems the addition of “eRINs” will add new RIN supply, and potentially offset the increased biofuel mandates.

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
Market TalkWednesday, Nov 30 2022

Energy Markets Are Seeing A Strong Rally For A 2nd Day

Energy markets are seeing a strong rally for a 2nd day as uncertainty about the upcoming OPEC meeting and about the looming Russian oil embargo seem to have markets focusing on supply fears again, after weeks of demand-fears driving prices lower. Diesel prices are up more than 22 cents from yesterday’s low trade, while gasoline prices are up 12. The bounce puts the complex back in neutral technical territory after surviving a trip to the edge of a breakdown that could have sent prices sharply lower. 

Concerns about a pending recession continue to plague equity markets as the US Treasury yield curve is inverted to a degree we’ve only seen a couple of times in the past 25 years. As the chart below shows, these inversions have been a good indicator of a pending economic slowdown. Energy markets seem to already have gotten that selling out of their system in the short term, but this could once again become a factor if this latest rally runs out of steam. 

The European Union still can’t unite on a price cap agreement for Russian oil, less than a week before an embargo on Russian oil is set to begin. Both WTI and Brent crude have slipped into a Contango price curve near term as current supplies are proving ample as traders have had months to prepare for this change, and demand has softened globally. 

Meanwhile, Italian officials continue to race to find a way to keep their Sicilian refinery in operation after the embargo begins, asking the US to provide banks assurance that they won’t face fines for breaching sanctions given the Russian-owned status of that plant. Since the US is a consistent buyer of products from that facility, and the East Coast continues to struggle to find enough supply, perhaps it’s an offer they can’t refuse. 

OPEC and friends have decided to hold their upcoming meeting virtually, which some are taking as a sign that they will roll over their output cut agreement from October. 

The tornado outbreak in the southern US looks like it stayed far enough away from the Gulf Coast to spare the refineries in the area. The Alon refinery in Big Spring TX reported an operational issue that lasted more than 16 hours Monday, that ENT is reporting could end up causing extended downtime at that facility. While that plant is far from the Gulf Coast trading hub, downtime could add to the supply challenges to West Texas and surrounding markets.

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