Beware The Ides Of March - Biggest Daily Drop Of Year For Energy Complex Yesterday
Beware the ides of March. Wednesday saw the biggest daily drop of the year for the energy complex, which joined in a major selloff in risk assets around the world as fears over the latest banking crisis spread.
Futures did not waste any time moving towards their technical targets to the downside when chart support failed to do much at all to stand in the way of the selling wave yesterday morning. WTI dropped briefly below $66, its lowest since December of 2021, while ULSD dropped to its lowest level since early January of 2022, and RBOB closing the gap in its charts left behind by the RVP roll, which now leaves the complex looking like it may consolidate for a while.
Diesel prices continue to look the most vulnerable, with a move towards $2 possible if prices can’t hold above $2.50 to end the week. RBOB meanwhile doesn’t look nearly so bad despite the big drop yesterday, and now that the gap is closed on the continuous chart, there’s still an argument to be made that we could get a traditional spring rally over the next couple of months.
While the 10+ cent drops in refined products and 20-cent trading ranges are certainly noteworthy, they pale in comparison to what we saw in March of last year, when trading ranges were routinely north of 30 cents/gallon. March 15, 2022, for example, saw gasoline prices drop 17 cents with a 28-cent range, while ULSD dropped 25 cents with a 33-cent range, and that day was actually quite tame compared to the previous week.
The DOE had another adjustment of more than 15 million barrels (aka 2.2 million barrels/day) on crude oil inventories last week, which helped inventories build despite large increases in exports and refinery runs, while production remains stagnant.
Total petroleum demand remains soft, well below last year and the 5-year average as gasoline and diesel consumption are both holding at the bottom end of their 5-year seasonal range.
Exxon announced that its 250mb/day expansion at its Beaumont refinery was officially online Wednesday, which accounted for the 249mb/day increase in PADD 3 refinery runs last week. The DOE has not yet counted those new units in its capacity figures, which will mark the largest increase in US output in over a decade, and could be the last major refinery expansion ever in the US but will likely do so next week following the official announcement.
PADD 5 also saw a substantial increase in refinery runs last week of 124mb/day, or roughly 6% of capacity, as plants returned to service after a rash of issues in the past month. That increase in production was foreshadowed by large declines in gasoline basis values over the past couple of weeks.
The US Exported more than 6.2 million barrels/day of refined products last week, but gasoline and diesel only accounted for 2 million bpd of that total as the “other” liquids like propane, propylene, and other oils continue to see growth in both international demand and US production.
The IEA’s monthly oil report still suggests that global demand will accelerate sharply in 2023, bringing total consumption to a new record high of 102 Million barrels/day by the end of the year, despite the sluggish start. Rebounding air traffic and the release of pent-up Chinese demand are said to “dominate” the recovery. The report also forecasts refinery runs will stay strong this year, despite the recent collapse in diesel margins, as cracks are still strong by historical standards.
Couche-tard announced a $3.3 billion purchase of 2,200 stores from Total this morning, nearly doubling the company’s footprint in Europe.
Time for an omelet: The US PPI index decreased slightly in February, which brought a sigh of relief for those looking for any sign that inflation is going away. The news was less encouraging if you read further and saw that “Over 80 percent of the February decline in the index for final demand goods can be attributed to a 36.1-percent drop in prices for chicken eggs.”
Click here to download a PDF of today's TACenergy Market Talk
Latest Posts
“Buy The Rumor, Sell The News” Seems To Be The Trading Pattern Of The Week
No Official Word From OPEC Yet On Their Output Agreement For Next Year
Week 48 - US DOE Inventory Recap
The API Reported Gasoline Inventories Dropped By 898,000 Barrels Last Week
Social Media
News & Views
View All
“Buy The Rumor, Sell The News” Seems To Be The Trading Pattern Of The Week
“Buy the Rumor, Sell the News” seems to be the trading pattern of the week as oil and refined products dropped sharply Thursday after OPEC & Friends announced another round of output cuts for the first quarter of next year.
Part of the reason for the decline following that report is that it appears that the cartel wasn’t able to reach an official agreement on the plan for next year, prompting those that could volunteer their own production cuts without forcing restrictions on others. In addition, OPEC members not named Saudi Arabia are notorious for exceeding official quotas when they are able to, and Russia appears to be (surprise) playing games by announcing a cut that is made up of both crude oil and refined products, which are already restricted and thus allow an incremental increase of exports.
Diesel futures are leading the way lower this morning, following a 13-cent drop from their morning highs Thursday, and came within 3-cents of a new 4-month low overnight. The prompt contract did leave a gap on the chart due to the backwardation between December and January contracts, which cut out another nickel from up front values.
Gasoline futures meanwhile are down 15-cents from yesterday’s pre-OPEC highs and are just 7-cents away from reaching a new 1-year low.
Cash markets across most of the country are looking soft as they often do this time of year, with double digit discounts to futures becoming the rule across the Gulf Coast and Mid Continent. The West Coast is mixed with diesel prices seeing big discounts in San Francisco, despite multiple refinery upsets this week, while LA clings to small premiums.
Ethanol prices continue to hold near multi-year lows this week as controversy over the fuel swirls. Corn growing states filed a motion this week trying to compel the courts to force the EPA to waive pollution laws to allow E15 blends. Meanwhile, the desire to grow even more corn to produce Jet Fuel is being hotly debated as the environmental impacts depend on which side of the food to fuel lobby you talk to.
The chaotic canal congestion in Panama is getting worse as authorities are continuing to reduce the daily number of ships transiting due to low water levels. Those delays are hitting many industries, energy included, and are now spilling over to one of the world’s other key shipping bottlenecks.
Click here to download a PDF of today's TACenergy Market Talk.
No Official Word From OPEC Yet On Their Output Agreement For Next Year
Energy prices are pushing higher to start Thursday’s session after a big bounce Wednesday helped the complex maintain its upward momentum for the week.
There’s no official word from OPEC yet on their output agreement for next year, but the rumor-mill is in high gear as always leading up to the official announcement, if one is actually made at all. A Reuters article this morning suggests that “sources” believe Saudi Arabia will continue leading the cartel with a voluntary output cut of around 1-million BPD to begin the year and given the recent drop in prices that seems like a logical move.
We saw heavy selling in the immediate wake of the DOE’s weekly report Wednesday, only to see prices reverse course sharply later in the day. ULSD was down more than 9-cents for a few minutes following the report but bounced more than 7-cents in the afternoon and is leading the push higher this morning so far.
It’s common to see demand drop sharply following a holiday, particularly for diesel as many commercial users simply shut down their operations for several days, but last week’s drop in implied diesel demand was one of the largest on record for the DOE’s estimates. That drop in demand, along with higher refinery runs, helped push diesel inventories higher in all markets, and the weekly days of supply estimate jumped from below the 5-year seasonal range around 25 days of supply to above the high end of the range at 37 days of supply based on last week’s estimated usage although it’s all but guaranteed we’ll see a correction higher in demand next week.
Gasoline demand also slumped, dropping to the low end of the seasonal range, and below year-ago levels for the first time in 5-weeks. You’d never guess that based on the bounce in gasoline prices that followed the DOE’s report however, with traders appearing to bet that the demand slump in a seasonal anomaly and tighter than average inventories may drive a counter-seasonal price rally.
Refinery runs increased across the country as plants returned to service following the busiest fall maintenance season in at least 4-years. While total refinery run rates are still below last year’s levels, they’re now above the 5-year average with more room to increase as no major upsets have been reported to keep a large amount of throughput offline.
The exception to the refinery run ramp up comes from PADD 4 which was the only region to see a decline last week after Suncor apparently had another inopportune upset at its beleaguered facility outside Denver.
The 2023 Atlantic Hurricane season officially ends today, and it will go down as the 4th most active season on record, even though it certainly didn’t feel too severe given that the US dodged most of the storms.
Today is also the expiration day for December 2023 ULSD and RBOB futures so look to the January contracts (RBF and HOF) for price direction if your market hasn’t already rolled.
More refineries ready to change hands next year? With Citgo scheduled to be auctioned off, Irving Oil undergoing a strategic evaluation, and multiple new refineries possibly coming online, 2024 was already looking to be a turbulent year for refinery owners. Phillips 66 was indicating that it may sell off some of its refinery assets, but a new activist investor may upend those plans, along with the company’s directors.