Aimless Action In Energy Markets

The back and forth and ultimately aimless action in energy markets continues, with another mixed bag for the futures complex to start Friday’s trading. While a Thursday bounce kept the risk of a technical breakdown at bay, if prices settle near current levels today we’ll have another weekly loss with a lower-high and lower-low than the previous week, which suggests that when prices do finally break out of this sideways range, it will be to the downside.
The price action has not helped the industry, as companies large and small still seem to be struggling with a challenging demand environment that looks like it could get worse over the winter.
Exxon was reportedly close to making job cuts in the U.S., after going through similar rationalizations around the world. While the large oil companies are all following a similar playbook on cutting expenses to survive the COVID crisis, a Rystad energy report suggests that many more smaller producers will not make it. The report forecasts more than $100 billion in debt that will need to be restructured via bankruptcy this year, and predicts bankruptcy filings will remain high over the next two years.
The outlook isn’t much better for refiners. The charts below show current crack spreads are near break-even levels, and the forward curve suggests those margins may not return to healthier levels for more than a year.
The plea to the EPA by senators in refining states to give those plants a break from unreachable renewable volume obligations didn’t seem to stir traders much Thursday with RIN values holding near multi-year highs, while ethanol prices continued to rally on the heels of surging corn prices.
Signs of a bottom? Trafigura was reported to take a stake in Italian refiner Saras, which (like most refiners) has seen its share price tumble this year. At current prices, that facility could be seen as more of a terminal asset than a production asset for the trading house, and the relatively small (3%) stake suggests they aren’t exactly jumping in with both feet.
Looking (far) ahead? Shell hired a leader for its Global Renewable Solutions department, who won’t start until August of 2021, in what is another sign of the tide change for refiners and perhaps of the cash flow challenges they face.
Libya’s warring factions are expected to sign a truce today, which should allow another 300,000 - 500,000 barrels/day of oil to reach the world market, which will put more pressure on the rest of the OPEC alliance to agree to extend production cuts as demand isn’t strong enough to soak up any incremental supply.
The storm system that’s been churning in the Caribbean for the better part of a week looks like it went from nothing to maybe something overnight. The odds of development jumped to 60%, and instead of heading north and east over Cuba and the southern tip of Florida, it’s now looking like it might move further north into the Gulf of Mexico before making a hard right turn, so we’ll need to keep an eye on it over the weekend. Hurricane Epsilon is still churning through the Atlantic, but beyond some dangerous rip currents, should not impact the U.S. or Canadian coast lines as it is staying out to sea.
If you’re having trouble sleeping, take a look at the study the EIA commissioned on the energy efficiency gap in food processing.
Two conclusions were drawn from the study:
1. If the least efficient processing plants adopt basic upgrades, they’ll consume less energy.
2. We probably did not need the EIA to hire a company to perform a stochastic frontier regression analysis applied to pooled cross sections using plant level data from the quinquennial Census of Manufacturing to figure that out.
Click here to download a PDF of today's TACenergy Market Talk.
Latest Posts
Week 48 - US DOE Inventory Recap
The API Reported Gasoline Inventories Dropped By 898,000 Barrels Last Week
Values For Space On Colonial’s Main Gasoline Line Continue To Drop This Week
After Another Black Friday Selloff Pushed Energy Futures Sharply Lower In Last Week’s Holiday-Shortened Trading
Social Media
News & Views
View All
Week 48 - US DOE Inventory Recap

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

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.