After A Big Labor Day Rally, Diesel Prices Dropped 20 Cents From Monday’s Highs
Volatile price movement on low volume has become a major theme in energy markets as traders seen to be vacillating between supply fears and demand fears daily.
After a big Labor Day rally, Diesel prices dropped 20 cents from Monday’s highs, ending Tuesday’s session down slightly from Friday’s settlement. That brief rally managed to close the chart gap left behind by the September contract roll, and the subsequent selloff sets up a test of last week’s low at $3.44.
Gasoline futures are down for the week, despite a modest bounce this morning, and the charts continue to suggest a good chance that we’ll see more selling in the weeks ahead. Crumbling values for NYH spot prices seem to be adding to the weak sentiment for futures, and driving the value for linespace on Colonial’s mainline to negative figures, just a week after they were trading for a 10 cent/gallon premium. While futures are looking weak, California gasoline prices continue to surge, trading $1.20/gallon over futures in LA Tuesday, as power concerns and refinery hiccups continue to hamper regional supplies. We will see a huge drop in those prices as we reach the transition to winter-spec gasoline, but that’s still 6 weeks away for California, whereas most of the rest of the country will change over next week.
European leaders are planning to enact a price cap on Russian energy supplies to try and curb runaway electricity prices, and Russia’s countermove is to threaten a complete shutdown of energy exports if those caps are enacted.
China’s oil imports dropped 9% in August vs a year ago, and with more cities enforcing lockdowns in September, the demand from the world’s largest buyer is set to drop even further.
The huge spike in European electricity prices following Russia’s moves to cut off natural gas flows to the continent have left utilities in need of more than $1.5 trillion to meet margin calls, which could force some companies out of business and more to stop trading. We’ve seen a similar although so far less extreme example of this in the ULSD contract as the incredible volatility this spring drove a huge decline in open interest, and volume traded, which is adding to the volatility we’re experiencing now.
The weekly inventory reports are delayed a day due to the holiday, so expect the API report this afternoon and the DOE’s report tomorrow morning.
The EIA Tuesday highlighted 3 new LNG export projects scheduled in the US, that would increase capacity by nearly 1/3. That’s the good news. The bad news for parts of the world in desperate need of more natural gas supply is those projects don’t start for another year, and aren’t scheduled to be online until 2026.
There are two hurricanes in the Atlantic, and one in the Pacific today, but none of these storms appears to be a threat to energy infrastructure, even though Hurricane Kay is bringing rare tropical storm warnings to parts of Southern California. Kay looks like it could be a double-edged sword for the state, as it may snap the heat wave that’s brought the state’s electric grid to the brink of failure, but will bring high winds and rain to the area that could cause problems of their own. There are two more potential systems being tracked by the NHC, but the early guesses suggest low odds that either one will be a threat to the US.
Click here to download a PDF of today's TACenergy Market Talk.
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View AllEnergy 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.
Week 23 - US DOE Inventory Recap
Energy Prices Retreat, Global Demand Concerns Loom
So much for that rally. Energy prices have given back all of the gains made following Saudi Arabia’s announcement that it would voluntarily withhold another 1 million barrels/day of oil production starting in July. The pullback appears to be rooted in the ongoing concerns over global demand after a soft PMI report for May while markets start to focus on what the FED will do at its FOMC meeting next week.
The lack of follow through to the upside leaves petroleum futures stuck in neutral technical territory, and since the top end of the recent trading range didn’t break, it seems likely we could see another test of the lower end of the range in the near future.
RIN prices have dropped sharply in the past few sessions, with traders apparently not waiting on the EPA’s final RFS ruling – due in a week – to liquidate positions. D6 values dropped to their lowest levels in a year Monday, while D4 values hit a 15-month low. In unrelated news, the DOE’s attempt to turn seaweed into biofuels has run into a whale problem.
Valero reported a process leak at its Three Rivers TX refinery that lasted a fully 24 hours. That’s the latest in a string of upsets for south Texas refineries over the past month that have kept supplies from San Antonio, Austin and DFW tighter than normal. Citgo Corpus Christi also reported an upset over the weekend at a sulfur recovery unit. Several Corpus facilities have been reporting issues since widespread power outages knocked all of the local plants offline last month.
Meanwhile, the Marathon Galveston Bay (FKA Texas City) refinery had another issue over the weekend as an oil movement line was found to be leaking underground but does not appear to have impacted refining operations at the facility. Gulf Coast traders don’t seem concerned by any of the latest refinery issues, with basis values holding steady to start the week.
Click here to download a PDF of today's TACenergy Market Talk.