Baker Hughes Reported A Decline Of 7 Oil Rigs Drilling In The US, While The Natural Gas Rig Count Held Steady

Market TalkMonday, Feb 27 2023
Pivotal Week For Price Action

It’s another mixed bag for energy markets to start the week, with ULSD trying to follow through on its strong showing Friday, while RBOB is flat and WTI is trading modestly lower to start the day. 

Natural gas prices have rebounded sharply in the past 4 days, reaching $2.69 overnight after trading as low as $1.96 last Wednesday. The restart of the Freeport export facility, and some forecast models calling for below average temps in March after a much warmer than normal winter are both getting credit for that rally, which is no doubt having some positive impact on ULSD prices which have rallied 15 cents since reaching their lowest levels in 13 months last week, just as natural gas prices were bottoming out.

The CFTC issued its first set of commitments of trader's data in nearly a month Friday, releasing data originally scheduled to be published from January 31. The agency hopes to get caught up with its reporting by Mid-March. In case you were wondering, the contracts directly impacted by the cyber-attack, based on the latest update were “IFED MISO IN RT Off-Peak and CME USD Malaysian Crude Palm Oil Calendar Spread contract markets”. Somehow, I think the world could have managed without seeing the COT data on those two contracts.   

While we’re still a couple of weeks behind for NYMEX contracts, we can see the money flows in ICE Brent and Gasoil contracts, and no surprise there it’s been steady liquidation by hedge funds for diesel contracts so far in February as prices have crumbled. 

Baker Hughes reported a decline of 7 oil rigs drilling in the US, while the natural gas rig count held steady. California, New Mexico, Oklahoma and West Virginia all had a decline of 2 or more rigs on the week, while Texas held steady. Canada looks like it has topped out for its winter drilling season, with a reduction of 5 rigs on the week. 

Russia’s influence on European energy supplies continues to be a wild card, with changes continuing on a near daily basis. Over the weekend we saw reports that Russia was allowing shipments of crude from Kazakhstan to Germany to begin flowing after delaying them for several weeks only then to find out that Russia had cut off shipments to Poland due to “paperwork issues”. Neither event seemed to have much influence on futures prices but serve as a reminder that despite the relative calm that’s taken over markets so far in 2023, there are still plenty of unknowns in the global supply network this year.

The Deer Park TX refinery was forced to shut its smaller crude unit after a fire on Thursday, which was one of 3 fires to hit owner Pemex’s operations in the US and Mexico that day. 

So far there are no reports of major issues at California refineries following the blizzard, although power outages in the region were numerous.  

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Market Talk Update 02.27.2023

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Pivotal Week For Price Action
Market TalkWednesday, Jul 17 2024

Energy Markets Are Trying To Find A Price Floor After Gasoline And Crude Oil Staged A Healthy Bounce To Minimize The Heavy Losses

Energy markets are trying to find a price floor after gasoline and crude oil staged a healthy bounce to minimize the heavy losses we saw early in Tuesday’s session. WTI is leading the move higher early Wednesday, up nearly $.90/barrel in the early going, while RBOB prices are up just under a penny.

Diesel continues to look like the weak link in the energy chain both technically and fundamentally. Tuesday the API reported a 4.9 million barrel build in diesel stocks, while gasoline inventories were only up 365,000 barrels, and crude oil stocks declined by more than 4.4 million barrels. The DOE’s weekly report is due out at its normal time this morning and it’s likely we’ll see a reduction in oil output and PADD 3 refining runs thanks to shut ins ahead of Hurricane Beryl, but otherwise the storm appears to be a relative non-issue with only 1 notable refining hiccup, that wasn’t even as bad as a midwestern Thunderstorm.

Chicago basis values rallied Tuesday after reports that Exxon had shut down the 250mb/day Joliet refinery following severe storms that knocked out power to the area Sunday. RBOB differentials surged nearly 9 cents on the day, while diesel diffs jumped more than a nickel. With 3 large refineries in close proximity, the Chicago cash market is notoriously volatile if any of those facilities has an upset. Back in May there was a one-day spike in gasoline basis of more than 50 cents/gallon after Joliet had an operating upset so don’t be surprised if there are bigger swings this week if the facility doesn’t come back online quickly.

Moving in the opposite direction, California basis values are heading the opposite direction with the transition to August scheduling pressuring CARBOB differentials in LA and San Francisco to their biggest discounts to prompt RBOB futures in more than 18 months. Gasoline imports into PADD 5 have held well above average levels over the past 2 months, which has more than offset the loss of the P66 Rodeo refinery’s output after it completed its conversion to RD production, in another sign of how growing refining capacity in China and other Asian countries may become more influential to the US. California regulators may also pat themselves on the back that their new plans to force refineries to report their gross profit monthly, in addition to the rules requiring all bulk trades in the state be reported must be driving the lower gasoline differentials, assuming they figure out what a basis differential is.

Meanwhile, California’s Carbon Allowance values have tumbled to their lowest levels in a year after a CARB presentation last week suggested the agency would be delaying long-anticipated tightening of the Cap and Trade program until 2026.

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

Pivotal Week For Price Action
Market TalkTuesday, Jul 16 2024

The Sell-Off In Energy Markets Continues, With Refined Products Reaching Their Lowest Levels In A Month Early In Tuesday’s Session

The sell-off in energy markets continues, with refined products reaching their lowest levels in a month early in Tuesday’s session. Reports of slowing growth in China, the world’s largest oil purchaser, is getting much of the credit for the slide in prices so far this week, although that doesn’t do much to explain why refined products are outpacing the drop in crude.

ULSD futures are leading the early move lower, trading down a nickel on the day, and marking a 19 cent drop since July 4th. There’s not much in the way of technical support for ULSD, so don’t be surprised if this sell-off continues to pick up steam.

With today’s slide, RBOB futures are down 17 cents from where they were trading on July 4th, and are just a couple of cents from testing their 200-day moving average. Should that support break, it looks like there’s a good chance to test the June lows around $2.29.

Physical markets are not offering any strength to the futures market with all 6 of the major cash markets for diesel across the US trading at a discount to ULSD futures, while only 1 gasoline market is trading at a premium to RBOB futures. That combination of weakness in futures and cash markets is going to be troubling for refiners who are seeing margins reduce during what is traditionally a strong time of year.

The EIA highlighted the energy trade between the US and Mexico in a report Monday, showing that despite so many claims of energy independence from Mexican officials, the actual amount of refined fuels and natural gas bought from the US continues to increase. That’s good news for many US refiners who have become more dependent on Mexican purchases to find a home for their output.

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