Bearish Trio Of Factors Hammering Energy Prices

Market TalkFriday, May 31 2019
Energy Markets Survive Heavy Wave Of Selling

A bearish trio of fundamental, technical and trade factors are hammering energy prices, with most futures down another 2% this morning, marking 5-6% losses on the week, and 12-14% losses for the month.

The DOE inventory report got the selling started in earnest Thursday morning, as US crude output regained its all-time high at 12.3 million barrels/day, and inventories held steady even though oil exports once again surpassed 3 million barrels/day last week. To put that in perspective, all else being equal, if the US wasn’t allowed to export crude oil as in year’s past, inventories would have climbed by more than 21 million barrels in a week.

Gasoline demand figures were also disappointing, holding below their seasonal 5 year average for a 3rd straight week just in time for refinery runs to start increasing across all 5 PADDs. Reports that the Ozark pipeline which feeds Midwestern refineries was back online after a brief storm-induced shutdown added to the negative sentiment for products. The good news for refiners was the distillate demand rebounded sharply last week after a dismal 2 month stretch of below-average estimates.

If the DOE stats weren’t enough, a report that the US would allow countries to continue buying Iranian oil until they’d reached a negotiated limit seemed to also contribute to the tidal wave of selling Thursday afternoon, and no one seemed to notice when that report was rejected later in the evening.

Unlike Thursday’s collapse, this morning’s heavy selling seems to be tumbling stock markets that were shocked by the latest tariff threat, this time levied against Mexico, the United States’ largest trading partner, just as the new version of NAFTA was ready to be ratified. IF Mexico chooses to retaliate, it could be bearish for refined products as the US has been steadily exporting more fuel south, whereas in years past this could be bullish for prices when the US relied more on Mexican oil.

In addition to the tariff surprise, there’s a strong technical argument for the selling today after support layers broke in Thursday’s session, creating a snowball effect to the downside. It seems likely given the size of the move this week and the volumes traded that we’re witnessing a liquidation event for a good portion of the speculative longs that have built up so far in 2019.

So, where to from here? We are nearing some new layers of technical support that helped hold up prices last winter, so it would not be surprising to see the selling end – or at least take a break – right around current levels. Then again, if we are witnessing another mass liquidation of speculative funds, those sell-offs tend to overshoot, which could mean we see another $5 taken out of crude and 20 cents or more taken out of products in June.

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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.

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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.

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