Black Friday Price Plunge in Energy Futures

Market TalkMonday, Dec 2 2019
Week 44 - US DOE Inventory Recap

A Black Friday price plunge in energy futures is being pared back in early Monday trading as most physical players return to their desks after the long holiday weekend. Refined product futures are up 3-4 cents on the day so far, meaning cash markets will only drop 3-4 cents from Wednesday should current values hold. The Friday selling was blamed on jitters ahead of the OPEC & Friends meeting this week, although the early recovery rally suggests it may have had more to do with a lack of liquidity than anything else.

The CFTC’s weekly Commitments of Traders report was delayed due to the holiday, so we won’t get a look at NYMEX holdings until this afternoon. Speculators did increase their bets on higher prices for Brent last week, indicating a growing appetite for risk as prices reached 2 month highs. No doubt those new longs were not enjoying Friday’s meltdown in prices, but may be breathing a sigh of relief if they held on until this morning.

Baker Hughes reported 3 more oil rigs were taken off-line in the US last week, a 6th consecutive weekly decline in the rig count. The slowdown in drilling activity has been well documented over the past several months, but it’s important to note that in-spite of the slowdown in new wells being drilled, US production just reached a new all-time high last week of 12.9 million barrels/day. Keep in mind that’s 1.2 million barrels/day more than the all-time record set this time a year ago, and it’s easy to see why the US remains on track to become a net exporter of petroleum after decades of being the world’s largest importer.

Speaking of changing petroleum trade dynamics, a new natural gas pipeline running from Russia to China has commenced operations, in the latest major shift to the East for Russian firms trying to avoid US sanctions.

 We are now less than a month away from the official start of the IMO diesel spec change for ships. While the market reaction has been muted thus far, it’s worth noting that US diesel stocks are holding near the low end of their 5 year seasonal range, putting much of the country at risk of price spikes if there’s a surge in demand.

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Pivotal Week For Price Action
Pivotal Week For Price Action
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.

Pivotal Week For Price Action
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.