Bulls Own Control Of Energy Prices

Market TalkThursday, Dec 10 2020
Market Talk Updates - Social Header

The bulls have control of energy prices this week as Brent crude is making a run at $50, while WTI and ULSD futures are both threatening eight month highs, despite some of the most bearish inventory we’ve seen since the spring. 

Yesterday’s DOE report showed the second largest weekly inventory build for U.S. crude oil stocks of the past 20 years, but after a few minutes of selling, the market resumed its slow and steady march higher, keeping the bullish trend intact. While the momentum clearly favors more upside near-term, as the market seems focused on where the economy should be next year rather than looking at the struggles it faces today, we’re approaching some critical technical resistance that will prove pivotal in the weeks to come. 

The 15 million barrel build in crude oil stocks was shocking at first, but quickly shrugged off as an anomaly due to exports hitting a two year low last week, while imports surged by more than a million barrels a day, accounting for an 18 million increase in domestic stocks. Refinery rates were actually up, and trade flows are expected to normalize, suggesting this huge build will not last long. In addition, we’re approaching the 12/31 property tax deadline in TX, where a huge proportion of the country’s oil is stored, and companies will hold what they can off shore to avoid getting hit with extra taxes, so we may see a dramatic reversal in the import/export flows in the coming weeks.

Perhaps even more bearish than the crude oil build was the drop in demand for refined products, and the corresponding inventory builds. It’s not unusual to see gasoline stocks rise this time of year, but the pace of the increases, and the rapid demand destruction of the past two weeks, suggests we’ll soon reach another breaking point where refiners will be forced to make more rate cuts. Speaking of which, lost in the big headline builds, was a decline in U.S. refining capacity of 230mb/day, which dropped the country’s total to the lowest level in four years. This was the second decline of this size so far this year (the first was when the PES capacity was finally removed from the weekly report) and marks the biggest annual decline in over a decade. This decline is not over however as there are still several more plants scheduled to be taken out of service in the coming year.

Another parting shot in the political battle over oil drilling: The outgoing White House administration is opening up California oil leases for the first time in eight years. The question is, given the current price environment, and the Golden State’s war on refiners, will anyone be interested in buying?

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

TACenergy MarketTalk 121020

News & Views

View All
Pivotal Week For Price Action
Market TalkThursday, Mar 28 2024

Energy Markets Are Ticking Modestly Higher Heading Into The Easter Weekend With Crude Oil Prices Leading The Way Up About $1.25/Barrel Early Thursday Morning

Energy markets are ticking modestly higher heading into the Easter Weekend with crude oil prices leading the way up about $1.25/barrel early Thursday morning, while gasoline prices are up around 2.5 cents and ULSD futures are about a penny.

Today is the last trading day for April HO and RBOB futures, an unusually early expiration due to the month ending on a holiday weekend. None of the pricing agencies will be active tomorrow since the NYMEX and ICE contracts are completely shut, so most rack prices published tonight will carry through Monday.

Gasoline inventories broke from tradition and snapped a 7 week decline as Gulf Coast supplies increased, more than offsetting the declines in PADDs 1, 2 and 5. With gulf coast refiners returning from maintenance and cranking out summer grade gasoline, the race is now officially on to move their excess through the rest of the country before the terminal and retail deadlines in the next two months. While PADD 3 run rates recover, PADD 2 is expected to see rates decline in the coming weeks with 2 Chicago-area refineries scheduled for planned maintenance, just a couple of weeks after BP returned from 7 weeks of unplanned repairs.

Although terminal supplies appear to be ample around the Baltimore area, we have seen linespace values for shipping gasoline on Colonial tick higher in the wake of the tragic bridge collapse as some traders seem to be making a small bet that the lack of supplemental barge resupply may keep inventories tight until the barge traffic can move once again. The only notable threat to refined product supplies is from ethanol barge traffic which will need to be replaced by truck and rail options, but so far that doesn’t seem to be impacting availability at the rack. Colonial did announce that they would delay the closure of its underutilized Baltimore north line segment that was scheduled for April 1 to May 1 out of an “abundance of caution”.

Ethanol inventories reached a 1-year high last week as output continues to hold above the seasonal range as ethanol distillers seem to be betting that expanded use of E15 blends will be enough to offset sluggish gasoline demand. A Bloomberg article this morning also highlights why soybeans are beginning to displace corn in the subsidized food to fuel race.

Flint Hills reported a Tuesday fire at its Corpus Christi West facility Wednesday, although it’s unclear if that event will have a material impact on output after an FCC unit was “stabilized” during the fire. While that facility isn’t connected to Colonial, and thus doesn’t tend to have an impact on USGC spot pricing, it is a key supplier to the San Antonio, Austin and DFW markets, so any downtime may be felt at those racks.

Meanwhile, P66 reported ongoing flaring at its Borger TX refinery due to an unknown cause. That facility narrowly avoided the worst wildfires in state history a few weeks ago but is one of the frequent fliers on the TCEQ program with upsets fairly common in recent years.

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
Pivotal Week For Price Action
Market TalkWednesday, Mar 27 2024

Most Energy Contracts Are Ticking Lower For A 2nd Day After A Trickle Of Selling Picked Up Steam Tuesday

Most energy contracts are ticking lower for a 2nd day after a trickle of selling picked up steam Tuesday. ULSD futures are down a dime from Monday’s highs and RBOB futures are down 7 cents.

Diesel prices continue to look like the weak link in the energy chain, with futures coming within 1 point of their March lows overnight, setting up a test of the December lows around $2.48 if that resistance breaks down. Despite yesterday’s slide, RBOB futures still look bullish on the weekly charts, with a run towards the $3 mark still looking like a strong possibility in the next month or so.

The API reported crude stocks increased by more than 9 million barrels last week, while distillates were up 531,000 and gasoline stocks continued their seasonal decline falling by 4.4 million barrels. The DOE’s weekly report is due out at its normal time this morning.

RIN values have recovered to their highest levels in 2 months around $.59/RIN for D4 and D6 RINs, even though the recovery rally in corn and soybean prices that had helped lift prices off of the 4 year lows set in February has stalled out. Expectations for more biofuel production to be shut in due to weak economics with lower subsidy values seems to be encouraging the tick higher in recent weeks, although prices are still about $1/RIN lower than this time last year.

Reminder that Friday is one of only 3 annual holidays in which the Nymex is completely shut, so no prices will be published, but it’s not a federal holiday in the US so banks will be open.

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