Bulls Temporarily Lose Control of Energy Market
The bulls have lost control of the energy market (temporarily at least) after failing to break through technical resistance during an early week rally. Today’s selling has a “risk off” feel to it, as it coincides with a big move lower in U.S. equities.
After a strong start to Tuesday’s trade that had petroleum futures on the cusp of new multi-year highs, a sharp and sudden selloff knocked oil prices down $2/barrel and refined products 4-5 cents/gallon in just a few minutes after “reports” via Twitter - which were lost in translation - of a breakthrough in negotiations between Iran and the U.S. Those comments were later walked back and the market erased those losses later in the session in a glaring example of the volatility risk when headline reading algorithms can trade on their own. To be fair, it’s not like human traders are proving to be much more intelligent this week: confusing a furniture retailer for a cryptocurrency.
At least four different Gulf Coast refiners had to curb run rates due to the severe weather sweeping the region this week. So far cash markets shrugged off that news and supply allocations didn’t change suggesting minor impacts. There are two more days ahead of severe weather, and even if no more damage is done this time, these storms are saturating the ground ahead of hurricane season, which officially starts in less than two weeks and is forecast to be busy.
Suppliers still scrambling to resupply across the Southeast had a few nervous hours Tuesday after an announcement that Colonial Pipeline’s scheduling system was taken offline. Fortunately that situation was only caused by the upgrades being made to protect their system against future hacks (how’s that for closing the barn door after the horse has escaped?) did not impact shipments, and only lasted a few hours. Terminals across the region continue to face short term outages, but the situation continues to improve every day.
While refined product prices have pulled back this week, RIN values continue to set new records, with D4 values trading north of the $2 mark Tuesday. That surge in values is adding a new level of pain to U.S. refiners that were just starting to recover from one of their worst years ever, as the RVO now takes nearly $10/barrel off of their gross margin.
While the RFS subsidy for biofuels continues to trade at record highs, a new bill aiming to extend the $1/gallon biodiesel blenders tax credit subsidy for biofuels was introduced Tuesday, more than 18 months ahead of the current expiration of the BTC. That’s a novel concept given that for much of the past decade that credit was only approved retroactively.
Meanwhile, read here about the boom in production of natural gas made from manure, thanks primarily to the subsidies paid by California’s LCFS program. Biomethane (AKA RNG) is the fastest growing category of fuel in the LCFS program, and now accounts for almost as much volume as biodiesel. That rapid increase in supply could help explain why LCFS credits are trading down on the year, while CCA credits used in the California/Quebec Cap & Trade program have been steadily moving higher.
Click here to download a PDF of today's TACenergy Market Talk.
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View AllEnergy Prices Fluctuate: Chinese Imports Surge, Saudi Arabia Cuts Output and Buys Golf
Energy prices continue their back-and-forth trading, starting Wednesday’s session with modest gains, after a round of selling Tuesday wiped out the Saudi output cut bounce.
A surge in China’s imports of crude oil and natural gas seem to be the catalyst for the early move higher, even though weak export activity from the world’s largest fuel buyer suggests the global economy is still struggling.
New tactic? Saudi Arabia’s plan to voluntarily cut oil production by another 1 million barrels/day failed to sustain a rally in oil prices to start the week, so they bought the PGA tour.
The EIA’s monthly Short Term Energy Outlook raised its price forecast for oil, citing the Saudi cuts, and OPEC’s commitment to extend current production restrictions through 2024. The increase in prices comes despite reducing the forecast for US fuel consumption, as GDP growth projections continue to decline from previous estimates.
The report included a special article on diesel consumption, and its changing relationship with economic activity that does a good job of explaining why diesel prices are $2/gallon cheaper today than they were a year ago.
The API reported healthy builds in refined product inventories last week, with distillates up 4.5 million barrels while gasoline stocks were up 2.4 million barrels in the wake of Memorial Day. Crude inventories declined by 1.7 million barrels on the week. The DOE’s weekly report is due out at its normal time this morning.
We’re still waiting on the EPA’s final ruling on the Renewable Fuel Standard for the next few years, which is due a week from today, but another Reuters article suggests that eRINs will not be included in this round of making up the rules.
Click here to download a PDF of today's TACenergy Market Talk.
Week 23 - US DOE Inventory Recap
Energy Prices Retreat, Global Demand Concerns Loom
So much for that rally. Energy prices have given back all of the gains made following Saudi Arabia’s announcement that it would voluntarily withhold another 1 million barrels/day of oil production starting in July. The pullback appears to be rooted in the ongoing concerns over global demand after a soft PMI report for May while markets start to focus on what the FED will do at its FOMC meeting next week.
The lack of follow through to the upside leaves petroleum futures stuck in neutral technical territory, and since the top end of the recent trading range didn’t break, it seems likely we could see another test of the lower end of the range in the near future.
RIN prices have dropped sharply in the past few sessions, with traders apparently not waiting on the EPA’s final RFS ruling – due in a week – to liquidate positions. D6 values dropped to their lowest levels in a year Monday, while D4 values hit a 15-month low. In unrelated news, the DOE’s attempt to turn seaweed into biofuels has run into a whale problem.
Valero reported a process leak at its Three Rivers TX refinery that lasted a fully 24 hours. That’s the latest in a string of upsets for south Texas refineries over the past month that have kept supplies from San Antonio, Austin and DFW tighter than normal. Citgo Corpus Christi also reported an upset over the weekend at a sulfur recovery unit. Several Corpus facilities have been reporting issues since widespread power outages knocked all of the local plants offline last month.
Meanwhile, the Marathon Galveston Bay (FKA Texas City) refinery had another issue over the weekend as an oil movement line was found to be leaking underground but does not appear to have impacted refining operations at the facility. Gulf Coast traders don’t seem concerned by any of the latest refinery issues, with basis values holding steady to start the week.
Click here to download a PDF of today's TACenergy Market Talk.