After A Choppy Start To The Week, Refined Products Are Leading A Strong Rally In The Energy Complex Wednesday Morning

Market TalkWednesday, Mar 13 2024
Pivotal Week For Price Action

After a choppy start to the week, refined products are leading a strong rally in the energy complex Wednesday morning as some bullish outlooks from 2 of the 3 major reporting agencies and more refinery upsets both seem to be spurring a bid.

While diesel prices are leading the charge in the early going, with April ULSD up 7.5 cents, the charts actually look more bullish for RBOB which just half a cent away from reaching a 5 month high, which would set up a run at the $3 mark if it can break through that resistance.

Several more drone attacks on refineries in Russia were reported overnight, with the country’s largest facility said to have a fire in its main crude distillation unit and at least one other facility damaged in the attacks. While getting a real story from any refinery on the impact of a fire is challenging, let alone one in Russia, two things seem apparent from this most recent string of attacks: 1. Russian exports are likely to decline and 2. Refinery managers around the world are now wondering how they’re going to prevent something similar from happening to them.

It’s data deluge week with the OPEC, EIA both released yesterday and the IEA’s monthly report due out tomorrow.

OPEC continues to sound bullish on the global economy, revising its GDP estimates higher for the year, even though its oil demand forecast held steady from last month. The cartel’s oil output increased by more than 200mb/day last month as Libya and Nigeria – both of whom are exempt from the output cut agreement given the state of flux in their countries – had large increases. OPEC’s report also noted the continued strength in shipping rates as the worsening situation around the red sea requires longer routes to get oil and products to where they need to be.

A Reuters article Monday highlighted the drastic divergence in demand estimates from OPEC and the IEA, both of whom are no doubt using their monthly reports to promote their agenda. OPEC of course has incentive to believe that global demand is going to be healthy, and require more of the cartel’s oil to meet those needs, while the IEA has been championing the energy transition for years.

The EIA meanwhile is also sounding quite bullish in its monthly Short Term Energy Outlook, making a large revision higher in its US GDP estimates for 2024. The EIA reduced its global supply growth outlook for 2024 after OPEC & friends extended their output cuts, which they expect will lead to a drawdown of inventories in the 2nd quarter. The agency predicts that the higher oil prices caused by the drawdown will lead to gasoline prices averaging roughly 20 cents more per gallon than they were estimating last month, which is probably more confirmation that the government is overpaying some company to provide their macro-economic data than anything else.

One interesting note from the EIA’s report is the impact that improving fuel efficiency is having on total gasoline consumption. The report shows strong growth in vehicle miles which are expected to hit all-time highs in 2024 and 2025, but gasoline demand is flat due to the better fuel economy.

The report also highlights the warm winter’s impact on natural gas prices which hit a record low in February. In total, the US had 8% fewer heating degree days during this winter compared to the 10 year average, putting plenty of pressure on domestic producers until more export capacity comes online in the next year.

The API estimated oil inventories declined by 5.5 million barrels last week, while gasoline stocks dropped by 3.8 million barrels and diesel fell by 1.2 million barrels. The DOE’s weekly report is due out at its normal time, and the refinery run rates will be key to know how well BP and others are doing in their efforts to restart their plants after extended downtime.

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

Market Talk Update 3.13.24

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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