Bulls Aren’t Giving Up Control Of This Market Just Yet

Market TalkThursday, Oct 7 2021
Pivotal Week For Price Action

We saw a big pullback in energy prices over the past 24 hours, but a 5 cent bounce from overnight lows suggests the bulls aren’t giving up control of this market just yet.  

Wednesday’s trading created an outside down pattern on the daily charts after setting a new 7 year high overnight, only to end the day with a lower low than the previous session. That type of bar is known to be a classic reversal pattern that sets up more selling at the end of a rally, and that’s exactly what we got overnight with products dropping another 5-6 cents from the settlement, which marks a decline of 12-15 cents from the highs set just 24 hours earlier.  

Now the fun begins as prices have bounced nearly 6 cents off of trend line support based on the huge rally over the past 3 weeks, suggesting this selloff was more profit taking after the market was severely overbought, and not a reversal in trend.   As long as we see products hold above those overnight lows ($2.25 for RBOB and $2.35 for ULSD) there’s an argument to be made that the upward trend is still alive and should favor higher prices in the weeks to come. IF that trend breaks, expect another 10 cents of downside in short order.

For what it’s worth, the big physical traders don’t appear to be buying the big run-up in futures, with basis values for gasoline in particular and diesel to a lesser degree sliding this week.  Speaking of which, it’s been a bad week for spills, with a tank leak at the 2nd largest refinery in the country making for some eye popping videos, but the market shrugged it off as the oil is contained in the berm system designed for just this type of event and operations at the refinery don’t seem to be impacted.  Similarly, LA-area refiners don’t appear to be facing shortfalls from the pipeline leak that’s been headline news for the past several days as prices in the market haven’t flinched. Meanwhile, Kinder Morgan’s refined products pipeline FKA Plantation remains closed until the weekend due to a spill in Alabama. Originally that line was scheduled to come back online Wednesday, but restart has been delayed until the weekend as it appears a cause of the spill is still under investigation.  Allocations at terminals along the line have tightened up, and some outages are occurring, but so far the impact is relatively contained.

The EIA published its annual world energy outlook Wednesday. The highlight (or lowlight depending on your perspective) of the report was that despite the bandwagon effect of net-zero by 2050 claims, production of oil, nat gas, and even coal, is expected to continue growing for the next 30 years as emerging markets – primarily in Asia - continue to drive demand.  That report is a harsh reality check for those aiming to end fossil fuel usage. 

Not much exciting from yesterday’s DOE status report. Total US refinery runs did surpass 2019 levels for this time of the year, marking the first week since the start of COVID we’ve seen that.  Run rates were up in 4 out of 5 PADDs for a 2nd week, as plants seem to be returning from fall maintenance and taking advantage of the unplanned downtime at 2 gulf coast plants since Ida knocked them offline.

The tropics remain quiet, with no expected storms to be named over the next 5 days according to the NHC.

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Market Talk Update 10.04.21

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Pivotal Week For Price Action
Market TalkWednesday, May 29 2024

The Texas Power Grid Is Once Again In The Forefront After Another Round Of Storms Left Hundreds Of Thousands Without Power Tuesday

It’s a quiet start to Wednesday’s trading, with refined products up less than a penny in the early going, following a healthy bounce Tuesday that alleviated concerns of a technical price breakdown near term.

A container ship transiting the Red Sea was heavily damaged by a Houthi Missile attack Tuesday. While energy markets continue to shrug off the shipping disruptions caused by those attacks, container ports around the world are feeling its effects and emissions from shipping are increasing along with the longer routes taken to avoid the conflict.

Consolidation continues: Less than a day after Hess shareholders approved its sale to Chevron, Conoco Phillips is reportedly in advanced negotiations to buy Marathon Oil for $22 billion. To avoid confusion, this does not have anything to do with the refining operations at Phillips 66 or Marathon Petroleum, both of which were spun off from their upstream exploration and production companies more than a decade ago. Meanwhile, acquisition activity in the Permian basin remains hotter than drilling activity as Energy Transfer agreed to buy WTG for more than $3 billion.

The Texas power grid is once again in the forefront after another round of storms left hundreds of thousands without power Tuesday. A Reuters article this morning highlights the record setting growth of renewable energy in Texas along with the record use of fossil-based sources to meet the state’s rapid demand increases. This phenomenon isn’t unique to the Lonestar state, with many in the industry believing that electricity demand from AI, Crypto and EV’s will drive the next energy supply squeeze in coming years.

Slowdown coming? The Dallas Fed’s Texas Manufacturing survey showed negative readings on output, new orders and the business conditions outlook in May.

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Pivotal Week For Price Action
Market TalkTuesday, May 28 2024

ULSD Is Leading The Move Higher This Morning With Prices Up Nearly A Nickel In The Early Going

Energy futures are attempting another recovery rally, with products up more than 7 cents from Friday’s early lows, while crude oil contracts have taken back $3/barrel over that time. ULSD is leading the move higher this morning with prices up nearly a nickel in the early going, while RBOB futures are up around 2.5 cents.

Money managers were adding net length in WTI, ULSD and Gasoil contracts last week with both new long positions and heavy short covering. Brent crude was a different story however with speculative net length in the European crude contract slashed by nearly 1/3 with nearly 33,000 new short positions added during the prior week. The big reduction in WTI shorts while Brent shorts are being added suggests the big play by hedge funds may be the WTI/Brent spread rather than bets on outright price movements.

Baker Hughes reported no change in the total oil rig count drilling in the US last week, holding steady at 497 vs 570 a year ago. Natural Gas rigs dropped by 4 on the week, reaching a 2 year low at 99 rigs, down from 137 this time last year. Natural gas prices have staged a big recovery from around $1.50/MMCF a month ago to $2.50 today, but current values are still not high enough to encourage drillers to get more active, particularly with more gas being produced from oil wells.

Deadly storms hit large parts of the country over the Holiday weekend, and continue this morning, but so far no reports of refinery damage from those systems has been reported. Marathon did report an upset in a Residual Hydrotreating unit at its Galveston Bay refinery Friday, but that event doesn’t appear to have slowed down the rest of the facility.

More bad news for US Bio producers: The EIA this morning highlighted the growth in biodiesel imports into the US from Europe – primarily Germany – as changing appetites for renewables and disjointed policies incent more barrels to travel long distances on diesel burning ships to find the highest tax credit value.

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Market TalkFriday, May 24 2024

Selling Continues In Energy Markets After Thursday's Reversal Rally Ran Out Of Steam In The Afternoon

The selling continues in energy markets after Thursday’s reversal rally ran out of steam in the afternoon, following the lead of U.S. equity markets which had a big sell-off on the day. Prices haven’t yet fallen below the multi-month lows we saw early last week, but we’re just a couple of cents away from those levels, and the potential technical trapdoor that could lead to sharply lower values over the next couple of weeks.

We did see a brief spike in gasoline futures after the settlement Thursday following reports that Colonial had shut down Line 4 due to an IT issue, but those gains were short-lived as the pipeline was restarted without issue a few hours later. Those who remember the chaos of May 2021 after Colonial was hacked are breathing a sigh of relief, particularly on one of the busiest demand days of the year, while others are no doubt disappointed we won’t get to see the rash of fake photos of people filling up plastic bags with gasoline.

OPEC & Friends (AKA the DoC) announced they’re moving June’s policy meeting to a virtual-only affair, which the market is taking as a signal of the status quo being held on output cuts.

Chicago being Chicago: Tuesday’s 60-cent basis spike was officially wiped out by Thursday afternoon, suggesting the short-lived rally was just short covering in an illiquid market rather than a meaningful supply disruption.

RIN values continued their rally this week, touching a 4-month high at 59 cents/RIN for both D4 and D6 values Thursday. If you believe in technical analysis on something like RINs, you can see a “W” pattern formed on the charts, suggesting a run to the 80-cent range is coming if prices can get above 60. If you are more of a fundamentalist, then you’ll probably think this rally is probably more short-term short-covering by producers of RD who have changed their schedule buying back their RIN hedges for volume they’re no longer planning to produce.

NOAA issued its most aggressive Hurricane forecast ever Thursday, joining numerous other groups that think a La Nina pattern and record warm waters will create more and bigger storms this year. With the activity level seeming to be a foregone conclusion at this point, now it’s all about where those storms hit to know if this busy season will be a huge factor in energy supplies like we saw in 2005, 2008, 2012 and 2017. With the Houston area already being bombarded by floods and deadly wind this year, the refinery row across the U.S. Gulf Coast seems even more vulnerable than normal to the effects of a storm.

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