Bullish Headlines Push Energy Prices Higher, Refinery Upsets Persist

Market TalkWednesday, May 24 2023
Pivotal Week For Price Action

Energy markets finally got something to talk about besides the debt debate Tuesday, with a pair of bullish headlines helping to push prices modestly higher once again. The move is relatively tame so far however, as shaky stock markets seem to be keeping optimism for a real rally at bay for now.

The API reported large declines in oil and gasoline inventories last week of more than 6 million barrels each, while distillates declined by 1.8 million barrels. The market jumped immediately following that report as it suggests that the demand doldrums that have plagued the industry for the past 6 months may finally be in the rear-view mirror. The EIA’s weekly report is due out at its normal time this morning and will be delayed next week due to Memorial Day. 

The Saudi oil minister issued another warning to oil speculators who have been shorting prices this year, once again using the threat of “ouching” which seems somewhat comical considering his country’s reputation regarding human rights. The market took those comments to mean that there’s a chance that the de-facto leader of OPEC & Friends would be pushing for more output cuts, and prices rallied following those statements. 

A week after suffering a deadly fire, the 3rd largest refinery in the country had another operational upset Monday, this time in a hydro-treating unit, according to a filing yesterday with the TCEQ. Gulf coast basis values continue to shrug off these reports, with little movement seen over the past week.

The Group 3 market did see a bit of a buying spree Tuesday after a fire broke out at the CVR refinery in Wynnewood OK, injuring two employees. Group 3 values had already been trading at healthy premiums to the Gulf Coast for most of the past 2 months as inventories dropped well below their seasonal range, and this latest tick higher should encourage more barrels to head north, particularly since the draw to ship barrels west is rapidly diminishing. 

Speaking of which, rack prices across the Southwestern US continue their return to earth as local refineries ramp up after spring maintenance, alleviating the severe product shortages, and sending premiums for prompt barrels plummeting 70 cents/gallon or more in the past 2 weeks.

A Reuters article Tuesday suggested the EPA was backpedaling on plans to introduce eRINs to the RFS program and was officially recommending delaying that move in the final ruling for 2023-2025 that’s due in 3 weeks. The more heavily traded D6 (ethanol) and D4 (bio) RIN values were little changed following the news, while the lightly traded D3 (cellulosic) RINs continued to recover after the initial plan sent their values sharply lower this year.

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

Market Talk Update 05.24.2023

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Pivotal Week For Price Action
Market TalkFriday, Sep 22 2023

Energy Markets Are Ticking Modestly Higher This Morning But Remain Well Off The Highs Set Early Thursday

Energy markets are ticking modestly higher this morning but remain well off the highs set early Thursday following the reports that Russia was temporarily banning most refined product exports.  

The law of government intervention and unintended consequences: Russian officials claim the export ban is an effort to promote market stability, and right on cue, its gasoline prices plummeted a not-so-stable 10% following the news. 

There’s a saying that bull markets don’t end due to bad news, they end when the market stops rallying on good news. It’s possible that if ULSD futures continue lower after failing to sustain yesterday’s rally, or this morning’s, we could be seeing the end of the most recent bull run. That said, it’s still much too soon to call the top here, particularly with a steepening forward curve leaving prices susceptible to a squeeze, and the winter-demand months still ahead of us. Short term we need to see ULSD hold above $3.30 next week to avoid breaking its weekly trend line.

The sell-off in RIN values picked up steam Thursday, with 2023 D4 and D6 values dropping to the $1.02 range before finally finding a bid later in the session and ending the day around $1.07.   

Tropical Storm Ophelia is expected to be named today, before making landfall on the North Carolina coast tomorrow. This isn’t a major storm, and there aren’t any refineries in its path, so it’s unlikely to do much to disrupt supply, but it will dump heavy rain several of the major East Coast markets so it will likely hamper demand through the weekend. The other storm system being tracked by the NHC is now given 90% odds of being named next week, but its predicted path has shifted north as it moves across the Atlantic, which suggests it is more likely to stay out to sea like Nigel did than threaten either the Gulf or East Coasts.

Exxon reported an upset at its Baytown refinery that’s been ongoing for the past 24 hours.  It’s still unclear which units are impacted by this event, and whether or not it will have meaningful impacts on output. Total’s Pt Arthur facility also reported an upset yesterday, but that event lasted less than 90 minutes. Like most upsets in the region recently, traders seem to be shrugging off the news with gulf coast basis values not moving much. 

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

Pivotal Week For Price Action
Market TalkThursday, Sep 21 2023

The Yo-Yo Action In Diesel Continues With Each Day Alternating Between Big Gains And Big Losses So Far This Week

The yo-yo action in diesel continues with each day alternating between big gains and big losses so far this week. Today’s 11-cent rally is being blamed on reports that Russia is cutting exports of refined products effective immediately. It’s been a while since Russian sabre rattling has driven a noticeable price move in energy futures, after being a common occurrence at the start of the war. Just like tweets from our prior President however, these types of announcements seem to have a diminishing shelf-life, particularly given how the industry has adapted to the change in Russian export flows, so don’t be surprised if the early rally loses steam later today. 

The announcement also helped gasoline prices rally 5-cents off of their overnight lows, and cling to modest gains just above a penny in the early going. Before the announcement, RBOB futures were poised for a 5th straight day of losses.

IF the export ban lasts, that would be good news for US refiners that have seen their buyers in south American countries – most notably Brazil – reduce their purchases in favor of discounted barrels from Russia this year

US refinery runs dropped below year-ago levels for the first time in 6 weeks, with PADDS 1, 2 and 3 all seeing large declines at the start of a busy fall maintenance schedule.  Oil inventories continued to decline, despite the drop-in run rates and a big increase in the adjustment factor as oil exports surged back north of 5 million barrels/day. Keep in mind that as recently as 2011 the US only produced 5 million barrels of oil every day, and exports were mostly banned until 2016, so to be sending this many barrels overseas is truly a game changer for the global market.

Chicken or the egg?  Cushing OK oil stocks dropped below year-ago levels for the first time since January last week, which may be caused by the return of backwardation incenting shippers to lower inventory levels, the shift to new WTI Midland and Houston contracts as the export market expands.  Of course, the low inventory levels are also blamed for causing the backwardation in crude oil prices, and the shift to an export market may keep inventories at the NYMEX hub lower for longer as fewer shippers want to go inland with their barrels.

Refined product inventories remain near the bottom end of their seasonal ranges, with a healthy recovery in demand after last week’s holiday hangover helping keep stocks in check.  The biggest mover was a large jump in PADD 5 distillates, which was foreshadowed by the 30 cent drop in basis values the day prior.   The big story for gasoline on the week was a surge in exports to the highest level of the year, which is helping keep inventories relatively tight despite the driving season having ended 2 weeks ago.

As expected, the FED held rates yesterday, but the open market committee also included a note that they expected to raise rates one more time this year, which sparked a selloff in equity markets that trickled over into energy prices Wednesday afternoon. The correlation between energy and equities has been non-existent of late, and already this morning we’re seeing products up despite equities pointing lower, so it doesn’t look like the FOMC announcement will have a lasting impact on fuel prices this time around.

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