Big Swings Overnight Driven By Compromise News

Market TalkWednesday, Jul 14 2021
Pivotal Week For Price Action

It looks like a quiet morning for energy futures that are holding near break-even for the day, and still hovering close to 6 year highs. Don’t be fooled into thinking the market isn’t still volatile however, as the current values don’t show that refined products dropped 4 cents overnight (wiping out Monday’s 3-4 cent gains) only to bounce back violently to erase those losses in a span of just about 20 minutes shortly after 6 a.m. central. For now, the charts continue to favor higher prices with the 8-month-old bull trend intact, but we’ll need to see last week’s highs taken out before month end or there’s a good chance that a big correction lower will come soon.

The big swings overnight appear to be driven by news that Saudi Arabia and the UAE have reached a compromise, which should eventually bring more oil to market. The eventually piece may be what encouraged buyers to step back in so quickly as the new output – IF the deal is confirmed - isn’t likely to come online for several more months.

As has become the pattern of late, the API reported another large draw in oil inventories last week at 4 million barrels. Gasoline stocks were also estimated to be lower, by 1.5 million barrels, but distillates increased by nearly 4 million barrels, which helps explain ULSD futures seeing the most downward pressure overnight. The EIA’s weekly report is due out at its normal time this morning. Last week’s report saw an all-time record for the gasoline demand estimate, which coincided with the pre-holiday rush now that most people are back to moving about. There’s evidence on the ground of a substantial holiday hangover with retail volumes dropping last week, but it’s hard to say if that will translate to the official numbers which only measure product removed from the bulk system.  

EIA prophecy? Monday the EIA highlighted its Southern California Daily Energy report, (which is ominously published at eia.gov/special/disruptions/summer/) and then Tuesday a refinery near Los Angeles was reportedly forced to shut most of its units due to a power failure. That news sparked a modest rally in LA spot diesel basis, which had been languishing in negative territory for the past 2 months. So far the moves are relatively minor, just a penny or two, nothing like the wild swings the LA Spot market has been used to in years past, but have gone dormant over the past year. (See chart below)

Caught short: A violent spike in corn prices had RINs rallying early in Tuesday’s session, but quickly gave up those gains when the grain rally proved short lived.  It appears someone may have got caught short on the expiring July corn contract, which were up 80 cents (nearly 12%) at one point before giving up almost all of those gains later in the session, while the forward contracts did not move much at all. Not sure what that means? Think back to when crude went negative last April on the day before the May contract expired…it’s just like that, just less extreme and in reverse.  

More big news in the Carbon markets this week. The EU is set to release 13 policies today aimed at combating climate change this decade. The centerpiece is an expansion of the Emissions Trading Scheme (their word not mine). China meanwhile is launching the world’s largest Emissions-Trading program this week, which sounds impressive but also makes sense because they’re the world’s largest carbon emitter. Not sure what these various programs mean or how they work? You’re not alone, the segmentation in this rapidly expanding and evolving space is creating plenty of confusion, and like we saw in with the Renewable Fuel Standard, will likely attract plenty of fraudsters making up fake credits.

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

TACenergy MT 7.14.21

News & Views

View All
Pivotal Week For Price Action
Market TalkFriday, Dec 9 2022

Energy Futures Are Seeing Modest Gains To Start Friday’s Session

Energy futures are seeing modest gains to start Friday’s session, limping towards the finish line of a week that’s pushed prices to their lowest levels of the year, and cut 20-30 cents off of refined products. 

WTI futures have had a fairly muted reaction to news that the Keystone pipeline was forced to shut after more than ½ million gallons reportedly spilled into a Kansas creek this week. A timeline for restart is still unclear, but so far the price action suggests refiners aren’t panicking about where they’ll find replacement barrels, and those north of the spill may be rewarded with discounted barrels that now find themselves stranded, such as Western Canadian Select which is now trading down to $50/barrel.  

If RBOB can finish in the green today, it would mark the first trading day so far in December where the gasoline contract didn’t end lower, after 6 straight losing sessions. Cash markets are also looking weak, as the spread between gasoline prices in New York and the Gulf Coast dropped to its lowest level since early October this week, putting downward pressure on the price to lease space on Colonial’s Line 1. With refiners running full out to capture huge diesel margins, gasoline is becoming an unwelcome byproduct in many markets, and could become oversupplied in some regions in the near future, which could force some plants to reduce run rates. 

Distillate prices are seeing a similar convergence with the spread between Gulf and East coasts now less than 30 cents/gallon, which is more than $1/gallon lower than it was a month ago. Softer demand for both products due to the seasonal slowdown in gasoline and unseasonably warm weather limiting Heating Oil consumption are both getting credit for these cash markets suddenly returning to something more closely resembling what we’re used to seeing. 

Bad news is good news for stock markets as any negative data points may give the FED reason to slow their interest rate hikes.  Yesterday we saw stocks rally after an increase in jobless claims in the US. Today we’re seeing stocks give back some of yesterday’s gains after the PPI report showed inflation is remaining stubbornly high and above many forecasts, giving the FED another reason to continue with its tightening. Energy contracts continue to have a weak correlation to daily moves in equity prices, so it’s not too surprising we are seeing a small rally today even though stocks are pulling back.

Chinese refiners are racing to take advantage of liberal quotas this year and are expected to reach a record level of refined fuel exports this month.  Those supplies have provided a much needed supplement for a world short on distillates, but there are many questions and few answers about what they’ll look like next year.

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

Pivotal Week For Price Action
Market TalkThursday, Dec 8 2022

Refined Product Prices Are Bouncing Moderately This Morning After Selling Off Heavily For A Fifth Consecutive Trading Session Yesterday

Refined product prices are bouncing moderately this morning after selling off heavily for a fifth consecutive trading session yesterday. Heating oil futures have dropped over 50 cents per gallon since the beginning of the month as traders reconcile rebounding national distillate inventories, a warmer-than-expected European winter, dismal Chinese demand outlook, and the execution of the ban on Russian oil exports. Gasoline futures have dropped just over 25 cents so far in December while the West Texas Intermediate crude oil contract has fallen just $5 per barrel since last week.

The Department of Energy reported a 5.2 million barrel draw in crude oil inventories last week, marking the fourth consecutive week of stockpile drawdowns. On the flip side, national gasoline and diesel stocks likewise grew for the fourth week in a row, which makes sense given refineries are running near their 5-year seasonal high. Total refined product demand continued to sink, as typical of this time of year before everyone jumps in their cars to drive to grandma’s for Christmas.  

Oil futures have fallen below the $80 mark this week and have now given up all gains seen since Russia invaded Ukraine. While China’s relaxation of their pandemic policy should provide some upward pressure on oil prices, in theory, it seems most aren’t convinced the lack of restrictions will translate to increased petroleum demand.

Premiums to ship gasoline and diesel on the Colonial Pipeline (the main US’s petroleum artery going from Houston to New York) have dropped significantly over the past few days. Shippers can now move gasoline up the Eastern seaboard for “only” 9 cents above the pipeline’s tariff, which is the lowest its been since October. Moving diesel to the Northeast will run you 7 cents over costs.

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

Pivotal Week For Price Action
Market TalkWednesday, Dec 7 2022

The Downward Price Action Seen In Monday’s Trading Session Continued Into Tuesday

The downward price action seen in Monday’s trading session continued into Tuesday and energy futures charts are poised to test some significant resistance levels. Most notably, the prompt month ULSD futures contract is set to test its 100-week moving average at the ~$2.80 level, beyond which the path is open for prices to fall down to the $2.20s.

WTI crude oil futures face a tough test these next couple months as it bears down on its 200-month moving average which, if broken, could lead prices down to the $65 range. The energy complex is bouncing this morning, albeit moderately, on the news that China is abandoning its COVID testing and quarantine protocols. The mild upward price action suggests traders are hesitant to believe that will translate to a return of energy demand.

The Energy Information Administration published its monthly Short Term Energy Outlook yesterday, highlighting its higher-than-expected global oil inventory level estimate for 2023. The EIA also noted that the execution of the ban on Russian seaborne petroleum products by the European Union has rendered the future of distillate remarkedly hazy. Price direction for diesel’s home-heating counterpart seems a little easier to forecast: moderately higher prices are expected through January as winter sets in and demand ramps up.

The American Petroleum Institute reported a sizeable 6.4 million barrel draw in US crude oil inventories last week, along with builds in refined product stocks of 5.9 million barrels and 3.6 million barrels of gasoline and diesel, respectively. The official report published by the Department of Energy is due to come out at its regular time this morning (9:30am CST) and its confirmation or contradiction of the API’s estimate will likely determine the day’s trading sentiment.

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