Biggest 1-Day Selloff Of The Year

Market TalkFriday, May 24 2019
Gasoline And Diesel Contracts Trying To Lead Energy Complex Higher

Oil and refined products had their biggest 1-day selloff of the year so far Thursday as fear over demand slowing both domestically and globally seemed to put supply concerns from the Middle East on the back burner. The sell-off has daily, weekly and monthly charts all favoring lower prices, even with a modest recovery rally underway this morning. Unless there is a dramatic rally next week, it looks like oil prices will have their first monthly loss of the year, with charts favoring a test of $54 for WTI and $65 for Brent over the coming weeks, with another 10-15 cents of downside for refined products.

A WSJ article this morning points out how remarkable it is that we’ve had attacks on ships near the strait of Hormuz, the largest oil pipeline in Saudi Arabia, Iran and Venezuelan production is collapsing and Russia’s exports have dropped due to contamination issues, and yet prices are still falling to multi-month lows.

We will get to see the latest Commitment of Traders reports this afternoon, but that data is compiled as of Tuesday’s close of business, so we won’t get a chance to see if Thursday’s sell-off was driven by money managers heading for the exits until next Friday’s report.

Lost in the 8 cent futures losses, Midwest gasoline differentials spiked by about a nickel in both the Group 3 and Chicago hubs after HollyFrontier shut its Tulsa refinery due to expected flooding, and a segment of a Chicago-area pipeline was forced to shut for repairs.

An EIA note takes a look at gasoline prices leading up to Memorial day, which is the unofficial start of driving season in the US. The agency is predicting that retail prices will continue climbing over the next few months, which means this piece was probably written before this week’s heavy selling. That prediction also seems to contradict the chart below that shows retail gasoline prices often peak for the year right around this time.

NOAA’s 2019 Atlantic hurricane forecast gives a 40% chance of a “near normal” season, a 30% chance of an above normal season, and a 30% chance it will be below normal. That seems like a uniquely scientific way of saying they have no idea what’s going to happen.

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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.

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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.