Beware The Ides Of March - Biggest Daily Drop Of Year For Energy Complex Yesterday

Market TalkThursday, Mar 16 2023
Market Talk Updates - Social Header

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

Market Talk Update 03-16-23

News & Views

View All
Pivotal Week For Price Action
Market TalkFriday, May 17 2024

The Recovery Rally In Energy Markets Continues For A 3rd Day

The recovery rally in energy markets continues for a 3rd day with refined product futures both up more than a dime off of the multi-month lows we saw Wednesday morning. The DJIA broke 40,000 for the first time ever Thursday, and while it pulled back yesterday, US equity futures are suggesting the market will open north of that mark this morning, adding to the sends of optimism in the market.

Despite the bounce in the back half of the week, the weekly charts for both RBOB and ULSD are still painting a bearish outlook with a lower high and lower low set this week unless the early rally this morning can pick up steam in the afternoon. It does seem like the cycle of liquidation from hedge funds has ended however, so it would appear to be less likely that we’ll see another test of technical support near term after this bounce.

Ukraine hit another Russian refinery with a drone strike overnight, sparking a fire at Rosneft’s 240mb/day Tuapse facility on the black sea. That plant was one of the first to be struck by Ukrainian drones back in January and had just completed repairs from that strike in April. The attack was just one part of the largest drone attack to date on Russian energy infrastructure overnight, with more than 100 drones targeting power plants, fuel terminals and two different ports on the Black Sea. I guess that means Ukraine continues to politely ignore the White House request to stop blowing up energy infrastructure in Russia.

Elsewhere in the world where lots of things are being blown up: Several reports of a drone attack in Israel’s largest refining complex (just under 200kbd) made the rounds Thursday, although it remains unclear how much of that is propaganda by the attackers and if any impact was made on production.

The LA market had 2 different refinery upsets Thursday. Marathon reported an upset at the Carson section of its Los Angeles refinery in the morning (the Carson facility was combined with the Wilmington refinery in 2019 and now reports as a single unit to the state, but separately to the AQMD) and Chevron noted a “planned” flaring event Thursday afternoon. Diesel basis values in the region jumped 6 cents during the day. Chicago diesel basis also staged a recovery rally after differentials dropped past a 30 cent discount to futures earlier in the week, pushing wholesale values briefly below $2.10/gallon.

So far there haven’t been any reports of refinery disruptions from the severe weather than swept across the Houston area Thursday. Valero did report a weather-related upset at its Mckee refinery in the TX panhandle, although it appears they avoided having to take any units offline due to that event.

The Panama Canal Authority announced it was increasing its daily ship transit level to 31 from 24 as water levels in the region have recovered following more than a year of restrictions. That’s still lower than the 39 ships/day rate at the peak in 2021, but far better than the low of 18 ships per day that choked transit last year.

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

Pivotal Week For Price Action
Market TalkThursday, May 16 2024

Energy Prices Found A Temporary Floor After Hitting New Multi-Month Lows Wednesday

Energy prices found a temporary floor after hitting new multi-month lows Wednesday morning as a rally to record highs in US equity markets and a modestly bullish DOE report both seemed to encourage buyers to step back into the ring.

RBOB and ULSD futures both bounced more than 6 cents off of their morning lows, following a CPI report that eased inflation fears and boosted hopes for the stock market’s obsession of the FED cutting interest rates. Even though the correlation between energy prices and equities and currencies has been weak lately, the spillover effect on the bidding was clear from the timing of the moves Wednesday.

The DOE’s weekly report seemed to add to the optimism seen in equity markets as healthy increases in the government’s demand estimates kept product inventories from building despite increased refinery runs.

PADD 3 diesel stocks dropped after large increases in each of the past 3 weeks pushed inventories from the low end of their seasonal range to average levels. PADD 2 inventories remain well above average which helps explain the slump in mid-continent basis values over the past week. Diesel demand showed a nice recovery on the week and would actually be above the 5 year average if the 5% or so of US consumption that’s transitioned to RD was included in these figures.

Gasoline inventories are following typical seasonal patterns except on the West Coast where a surge in imports helped inventories recover for a 3rd straight week following April’s big basis rally.

Refiners for the most part are also following the seasonal script, ramping up output as we approach the peak driving demand season which unofficially kicks off in 10 days. PADD 2 refiners didn’t seem to be learning any lessons from last year’s basis collapse and rapidly increased run rates last week, which is another contributor to the weakness in midwestern cash markets. One difference this year for PADD 2 refiners is the new Transmountain pipeline system has eroded some of their buying advantage for Canadian crude grades, although those spreads so far haven’t shrunk as much as some had feared.

Meanwhile, wildfires are threatening Canada’s largest oil sands hub Ft. McMurray Alberta, and more than 6,000 people have been forced to evacuate the area. So far no production disruptions have been reported, but you may recall that fires in this region shut in more than 1 million barrels/day of production in 2016, which helped oil prices recover from their slump below $30/barrel.

California’s Air Resources Board announced it was indefinitely delaying its latest California Carbon Allowance (CCA) auction – in the middle of the auction - due to technical difficulties, with no word yet from the agency when bidders’ security payments will be returned, which is pretty much a nice microcosm for the entire Cap & Trade program those credits enable.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.

Pivotal Week For Price Action