After A Brief Pullback Thursday, Energy Prices Are Climbing Once Again

Market TalkFriday, Aug 26 2022
Pivotal Week For Price Action

After a brief pullback Thursday, energy prices are climbing once again, ending a strong week that followed Saudi Arabia sending a harsh message to the US President and the global oil market about its plans to set a floor under prices. 

A fire at the largest refinery in the Midwest that’s shut down production at most operating units comes just as the region prepares for its peak diesel demand during the harvest. For a supply network already stretched thin, particularly on distillates, this is exactly the type of disruption that has the potential to create a rash of outages if the refinery isn’t able to resume production soon. Given the location of the facility near of Chicago, this won’t directly impact the NYH market, but it still could impact futures as traders could be forced to unwind positions, and with low volume and open interest, it doesn’t take much to create big price swings. 

We did see ULSD have a large correction Thursday, pulling back after rising 97 cents/gallon in just 13 trading sessions. While an 18 cent reversal in a day is noteworthy, the contract still maintained a higher high and higher low on the daily chart, and has wasted no time this morning resuming the rally, which makes yesterday’s slide look like profit-taking rather than the end of the trend.

Another potential influence in Thursday’s big reversal (besides the fact that Thursday’s often host reversals) is the influence of the ULSD/RBOB spread that has seen record setting moves in the past week. That spread started the week at 68 cents/gallon then surged past $1.20 before pulling back yesterday. The “heat to gas” spread is one of a handful of trades known as “widow makers” in the industry, and the action this week demonstrates why. 

Financial markets are focused on a speech by the US FED chair later today, with fed fund futures showing that the market is essentially split on whether the September FOMC meeting will end with a 50 or 75 point rate increase. 

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Market Talk Update 08.26.22

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Pivotal Week For Price Action
Pivotal Week For Price Action
Market TalkWednesday, Nov 29 2023

The API Reported Gasoline Inventories Dropped By 898,000 Barrels Last Week

Gasoline and oil prices are attempting to rally for a 2nd straight day, a day ahead of the delayed OPEC meeting, while diesel prices are slipping back into the red following Tuesday’s strong showing. 

The API reported gasoline inventories dropped by 898,000 barrels last week, crude inventories declined by 817,000 barrels while distillates saw an increase of 2.8 million barrels. Those inventory stats help explain the early increases for RBOB and WTI while ULSD is trading lower. The DOE’s weekly report is due out at its normal time this morning. 

A severe storm on the Black Sea is disrupting roughly 2% of the world’s daily oil output and is getting some credit for the bounce in futures, although early reports suggest that this will be a short-lived event. 

Chevron reported that its Richmond CA refinery was back online after a power outage Monday night. San Francisco spot diesel basis values rallied more than a dime Tuesday after a big drop on Monday following the news of that refinery being knocked offline.

Just a few days after Scotland’s only refinery announced it would close in 2025, Exxon touted its newest refinery expansion project in the UK Tuesday, with a video detailing how it was ramping up diesel production to reduce imports and possibly allow for SAF production down the road at its Fawley facility. 

Ethanol prices continue to slump this week, reaching a 2-year low despite the bounce in gasoline prices as corn values dropped to a 3-year low, and the White House appears to be delaying efforts to shift to E15 in an election year. 

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Pivotal Week For Price Action
Market TalkTuesday, Nov 28 2023

Values For Space On Colonial’s Main Gasoline Line Continue To Drop This Week

The petroleum complex continues to search for a price floor with relatively quiet price action this week suggesting some traders are going to wait and see what OPEC and Friends can decide on at their meeting Thursday. 

Values for space on Colonial’s main gasoline line continue to drop this week, with trades below 10 cents/gallon after reaching a high north of 18-cents earlier in the month. Softer gasoline prices in New York seems to be driving the slide as the 2 regional refiners who had been down for extended maintenance both return to service. Diesel linespace values continue to hold north of 17-cents/gallon as East Coast stocks are holding at the low end of their seasonal range while Gulf Coast inventories are holding at average levels.

Reversal coming?  Yesterday we saw basis values for San Francisco spot diesel plummet to the lowest levels of the year, but then overnight the Chevron refinery in Richmond was forced to shut several units due to a power outage which could cause those differentials to quickly find a bid if the supplier is forced to become a buyer to replace that output.

Money managers continued to reduce the net length held in crude oil contracts, with both Brent and WTI seeing long liquidation and new short positions added last week. Perhaps most notable from the weekly COT report data is that funds are continuing their counter-seasonal bets on higher gasoline prices. The net length held by large speculators for RBOB is now at its highest level since Labor Day, at a time of year when prices tend to drop due to seasonal demand weakness. 

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