After 4 Days Of Heavy Selling, Energy Futures Are Seeing A Small Recovery Bounce To Start Friday’s Session

Market TalkFriday, Apr 21 2023
Pivotal Week For Price Action

After 4 days of heavy selling, energy futures are seeing a small recovery bounce to start Friday’s session. 

ULSD prices settled below $2.50/gallon for the first time since January 7th 2022 Thursday, which opens up a bit of a technical trapdoor that could see prices slide all the way to $2 before meeting long-term chart support.  The fact that we haven’t yet seen any follow through selling once support at $2.50 broke down suggests the market isn’t quite ready to capitulate.  

RBOB gasoline futures meanwhile have dropped 30 cents from the 6-month high they hit last week but are still holding above the weekly trend-line that has pushed values higher since bottoming out just above $2 back in December. If buyers continue to step in, this bounce will leave the door open to a run at $3 before the end of the annual spring rally, but if that trend support (around $2.55) breaks, then there really would be little technically to stop a major slide in both product prices. 

The weekly slide has put pressure on refiner margins, with crack spreads in several regions dropping to their lowest levels of the year. The most notable shift during this latest pullback in prices has been the forward curve for ULSD, which is now essentially flat from 3-12 months into the future, with a few months this summer trading below fall values. 

Got space?  While futures have been bombarded all week, physical markets continue to show signs of their limited capacity. Colonial linespace values continue to surge this week with gasoline premiums rallying to 7 cents/gallon in Thursday’s session as buyers try to refill summer-grade gasoline stocks along the east coast ahead of the driving season.  While that spike is noteworthy, it pales in comparison to what we’re seeing for space to ship products to Denver from the Group, which jumped up to a 15 cent premium following reports that Suncor was starting maintenance at the refinery it just restarted after being knocked offline for most of the winter. But even those lofty levels look soft compared to the 30 cent premiums to ship barrels to El Paso as 2 southwest refiners remain offline, and that is nothing compared to the 60+ cents/gallon being paid to ship product from LA to Phoenix, which is why we continue to see rack prices across the southwest price in $1/gallon or more above spot values. (See charts below)

There are some signs that this supply squeeze across the Southwest may be coming to an end, as prices for Phoenix-grade gasoline dropped 20 cents relative to LA spot markets yesterday. Then again, the premium for that boutique grade that has been a huge factor in the sudden tightness across the region is still $1.40/gallon even after the pullback. The inevitable return to earth, whenever it happens, is sure to leave traders in the area stressed out for the next several days as they could easily see the value of their product drop $1/gallon or more while it’s in transit.

California LCFS credit values have rallied to a 9 month high this week, outpacing gains in CCA credits which have also reached multi-month highs as regulators debate ways to make their various programs even more restrictive. While LCFS values are still less than half of what they were just 2 years ago, the rally may offer some relief to the parade of new Renewable Diesel producers who depend on those credit values to turn a profit.

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

Market Talk Update 04.21.2023

News & Views

View All
Pivotal Week For Price Action
Market TalkFriday, Jun 9 2023

Refined Products Bounce Back And Forth Across The Break-Even Line To Start Friday’s Trading

The choppy action continues for energy markets with refined products bouncing back and forth across the break-even line to start Friday’s trading after some big swings Thursday.

RBOB futures led the rollercoaster ride Thursday, trading up 4 cents in the early morning hours, only to see those gains turn into 10 cent losses mid-morning, and then erasing most of those losses in the early afternoon following an ENT report of unplanned maintenance at the largest refinery on the East Coast.  

The selling portion of the ride was blamed on a combination of an increase in jobless claims, and the disruptive impacts of the Canadian wildfires on the major population centers along the East Coast. While air traffic has been disrupted, so far there are not any reports of delays in ship traffic around the New York Harbor, and the strong basis and time spreads we’ve seen in NY have been easing this week, so it appears that this event is more concerning to the demand side of the equation than supply. 

From a technical perspective, it’s not surprising to see this type of back-and-forth action as most petroleum contracts look to be stuck in neutral territory on the charts, which encourages trading programs to sell as prices get towards the top end of a range, and buy when it gets to the low end. 

The Atlantic Hurricane season is off to a quiet start with no tropical development expected over the next week, but NOAA did issue an El Nino advisory Thursday that suggests the warm-water pattern in the Pacific could reach “supersized” levels and create all sorts of disruptive events. Perhaps most notable in the report is that forecasters don’t believe this year’s El Nino will have the same dampening impact on Atlantic hurricanes due to record warm temperatures in the water. Here’s a brief recap in case you missed the most memorable El Nino from 25 years ago. 

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

Pivotal Week For Price Action
Market TalkThursday, Jun 8 2023

Gasoline Futures Rally Despite Inventory Builds, Increased Throughput

Gasoline futures led another strong rally in the energy complex Wednesday and continued marching higher overnight before pulling back to near break-even levels around 7:45am central.

The RBOB contract has now wiped out the post-Memorial Day selloff, and erased the losses from the contract roll to July, setting up another test of the May highs at $2.73. If that resistance breaks, there’s a good chance we see another run at the $2.90 level, but if it holds we are probably still stuck in a sideways pattern as we move through the summer months.  West Coast gasoline prices meanwhile have reached a 3-month high as surging basis values compound the move in futures. 

The rally came despite healthy inventory builds for refined products and strong refinery runs across all 5 PADDs reported last week, with traders (or their algorithms) appearing to focus instead on healthy demand estimates in the DOE’s weekly status report. Gasoline also saw healthy exports last week, while diesel shipments overseas continued their decline which has helped keep downward pressure on diesel prices, which is essentially the polar opposite of what we were experiencing a year ago.

Lies, damned Lies and statistics:  PADD 3 refinery utilization hit 98.8% of the official capacity figure last week, which would mark a 5 year high, except the numbers are wrong. The DOE still isn’t including recent capacity additions of almost 300mb/day in those stats, so the actual figure is about 3% lower. Don’t worry though, the lack of accurate data probably isn’t intentional. The DOE recently announced it was suspending data collection for some of its monthly reports as the agency is still struggling to overcome the IT Systems failure they experienced a year ago. Add this to the realization that the official crude production and petroleum demand figures have been incorrect due to a lack of clarity surrounding condensate production that comes along with oil output.   

Speaking of which, the official US Oil output figure surged to the highest levels since the COVID lockdowns began more than 3 years ago last week. No word from the EIA if this means actual production increased, or if they’ve just changed the way they’re reporting the molecules coming out of the ground.

Irving Oil released a statement highlighting a strategic review of the company, that could include selling the business that’s been held by the Irving family for nearly 100 years. The Irving Refinery in New Brunswick is Canada’s largest at 300mb/day and is the largest importer of fuels into the northeastern US. Critics are arguing that the review is an attempt to politicize Canada’s Clean Fuel Regulation that could weigh on the refinery’s profitability when it goes into full effect in July or could simply incentivize the facility to send more product to the US.

RIN values saw their first bounce in a couple of weeks, with both D6 and D4 values climbing back above the $1.40 mark after their recent slide from the mid $1.50s. We’re still 6 days away from the EPA’s deadline to issue the final RFS ruling for the next couple of years.

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

Pivotal Week For Price Action
Market TalkWednesday, Jun 7 2023

Energy Prices Fluctuate: Chinese Imports Surge, Saudi Arabia Cuts Output and Buys Golf

Energy prices continue their back-and-forth trading, starting Wednesday’s session with modest gains, after a round of selling Tuesday wiped out the Saudi output cut bounce. 

A surge in China’s imports of crude oil and natural gas seem to be the catalyst for the early move higher, even though weak export activity from the world’s largest fuel buyer suggests the global economy is still struggling. 

New tactic?  Saudi Arabia’s plan to voluntarily cut oil production by another 1 million barrels/day failed to sustain a rally in oil prices to start the week, so they bought the PGA tour

The EIA’s monthly Short Term Energy Outlook raised its price forecast for oil, citing the Saudi cuts, and OPEC’s commitment to extend current production restrictions through 2024. The increase in prices comes despite reducing the forecast for US fuel consumption, as GDP growth projections continue to decline from previous estimates. 

The report included a special article on diesel consumption, and its changing relationship with economic activity that does a good job of explaining why diesel prices are $2/gallon cheaper today than they were a year ago.   

The API reported healthy builds in refined product inventories last week, with distillates up 4.5 million barrels while gasoline stocks were up 2.4 million barrels in the wake of Memorial Day. Crude inventories declined by 1.7 million barrels on the week. The DOE’s weekly report is due out at its normal time this morning. 

We’re still waiting on the EPA’s final ruling on the Renewable Fuel Standard for the next few years, which is due a week from today, but another Reuters article suggests that eRINs will not be included in this round of making up the rules.

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