Another Green Day For Energy Futures
It’s another green day for energy futures as prices continue to ride the bullish wave of OPEC cuts and the Phase-1 US/China trade deal. The move higher has been fairly small however (it took 2 full weeks to make up for just the Black Friday losses) which could mean traders are skeptical of the staying power of this rally, or simply that they’re focusing elsewhere as the holidays approach.
ULSD futures are starting to look particularly bullish with a trifecta of technical, fundamental and regulatory factors all favoring higher prices near term. If there’s any sort of major winter cold snap along the East Coast in the next few months, conditions are ripe for a 30+ cent price increase in short order. The first test on the charts looks to be the highs around $2.10 that were set in the wake of Iran’s attacks on Saudi oil infrastructure in September.
Gasoline prices are struggling to keep pace with the rest of the complex as we enter the seasonal demand slowdown, with US inventories at elevated levels, compared to distillate stocks that are at the bottom end of their seasonal range.
Values to ship gasoline on the main line of Colonial pipeline’s system rose to their highest levels in more than 3 years Monday as Gulf Coast basis values dropped to double digit discounts to RBOB futures amidst several refineries ramping up gasoline production. The loss of the PES refinery earlier this year along with the Tier 3 gasoline & IMO diesel spec changes for 2020 could make values along Colonial more consistently valuable vs recent years when they’ve spent the majority of their time in negative territory. As the chart below shows however, values for space along the line seem to be following a seasonal pattern, and won’t be a game changer unless they last into the spring.
The giant spending package working its way through congress is reported to include the $1/gallon biodiesel blenders credit retroactively from Jan 1 2018, through the end of 2022. If passed, that may well save numerous US biodiesel producers that were on the verge of insolvency without the credit, and give the industry a rare period of extended certainty after many years of having to wait for the credit to be reinstated retroactively.
The Dallas FED’s energy indicators report for December suggests that the slowdown in oil drilling has cost more than 8,000 job losses in TX this year, more than double the official federal estimate, as bankruptcies in the oil patch rose throughout the year. The report also notes that OPEC may have handed producers an early Christmas present with their output cuts that have propped up prices.
Click here to download a PDF of today's TACenergy Market Talk.
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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.
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.