Bulls Have Taken Back Control Of The Energy Markets To Start The New Year
The bulls have taken back control of the energy markets to start the new year, with a 3 day rally pushing Brent crude back above $80, and ULSD above $2.40 for the first time since you first heard about Omicron.
With a settlement above $2.40 on Tuesday, diesel futures have broken through their short term technical resistance, and now have an open road on the charts to push north of $2.50 in the coming weeks, and are not wasting any time already adding 2.5 cents this morning. RBOB continues to lag behind the ULSD enthusiasm, and still has some work to do to make a similar technical breakout, and gasoline prices have more fundamental headwinds this time of year which could create a tug of war between the two products for control of the complex.
Refinery upsets along the Gulf and West coasts continue to plague the industry, and seem to be contributing to the strength in product prices. The PNW continues to be the hardest hit as multiple facilities in the region remain offline in part or entirely following a freeze that anyone working at a Texas refinery a year ago can empathize with, which of course came just a couple short weeks after those facilities were shut down due to flooding. Prices in the region jumped double digits Tuesday on word of the extended downtime caused by the freeze.
Don’t underestimate the influence of fuel prices: Kazakhstan’s government resigned today following protests over the removal of fuel subsidies. It’s interesting to note that these protest focus on propane prices, which had been capped for years, which encouraged many to convert their vehicles to run on LPG instead of gasoline. Apparently the protesters thought the removal of those price caps was not very nice.
Speaking of which, the Dallas FED today released a study that explains why another ban on US crude oil exports would not lower gasoline prices in the country.
Click here to download a PDF of today's TACenergy Market Talk.
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Week 48 - US DOE Inventory Recap
The API Reported Gasoline Inventories Dropped By 898,000 Barrels Last Week
Gasoline and oil prices are attempting to rally for a 2nd straight day, a day ahead of the delayed OPEC meeting, while diesel prices are slipping back into the red following Tuesday’s strong showing.
The API reported gasoline inventories dropped by 898,000 barrels last week, crude inventories declined by 817,000 barrels while distillates saw an increase of 2.8 million barrels. Those inventory stats help explain the early increases for RBOB and WTI while ULSD is trading lower. The DOE’s weekly report is due out at its normal time this morning.
A severe storm on the Black Sea is disrupting roughly 2% of the world’s daily oil output and is getting some credit for the bounce in futures, although early reports suggest that this will be a short-lived event.
Chevron reported that its Richmond CA refinery was back online after a power outage Monday night. San Francisco spot diesel basis values rallied more than a dime Tuesday after a big drop on Monday following the news of that refinery being knocked offline.
Just a few days after Scotland’s only refinery announced it would close in 2025, Exxon touted its newest refinery expansion project in the UK Tuesday, with a video detailing how it was ramping up diesel production to reduce imports and possibly allow for SAF production down the road at its Fawley facility.
Ethanol prices continue to slump this week, reaching a 2-year low despite the bounce in gasoline prices as corn values dropped to a 3-year low, and the White House appears to be delaying efforts to shift to E15 in an election year.
Click here to download a PDF of today's TACenergy Market Talk.
Values For Space On Colonial’s Main Gasoline Line Continue To Drop This Week
The petroleum complex continues to search for a price floor with relatively quiet price action this week suggesting some traders are going to wait and see what OPEC and Friends can decide on at their meeting Thursday.
Values for space on Colonial’s main gasoline line continue to drop this week, with trades below 10 cents/gallon after reaching a high north of 18-cents earlier in the month. Softer gasoline prices in New York seems to be driving the slide as the 2 regional refiners who had been down for extended maintenance both return to service. Diesel linespace values continue to hold north of 17-cents/gallon as East Coast stocks are holding at the low end of their seasonal range while Gulf Coast inventories are holding at average levels.
Reversal coming? Yesterday we saw basis values for San Francisco spot diesel plummet to the lowest levels of the year, but then overnight the Chevron refinery in Richmond was forced to shut several units due to a power outage which could cause those differentials to quickly find a bid if the supplier is forced to become a buyer to replace that output.
Money managers continued to reduce the net length held in crude oil contracts, with both Brent and WTI seeing long liquidation and new short positions added last week. Perhaps most notable from the weekly COT report data is that funds are continuing their counter-seasonal bets on higher gasoline prices. The net length held by large speculators for RBOB is now at its highest level since Labor Day, at a time of year when prices tend to drop due to seasonal demand weakness.
Click here to download a PDF of today's TACenergy Market Talk.