Charts Continue To Suggest Diesel Is In A Precarious Position

Market TalkFriday, Feb 24 2023
Pivotal Week For Price Action

It’s a mixed bag for energy markets to start Friday’s trading with diesel prices up 2 cents, gasoline down 2 cents and crude oil flat in the early going.

Diesel prices had their lowest settlement Thursday since prior to the war breaking out a year ago, an event that was the major factor in ULSD futures breaking just about every record on the books. The March ULSD contract also came within a penny of hitting its lowest outright value of the past 13 months before once again finding enough of a bid to avoid a technical collapse. Charts continue to suggest diesel is in a precarious position, with a major slide possible if the $2.66 range fails to hold support. If you’re a believer in the trading adage that “There’s no such thing as a triple bottom” on the charts, then a slide into the $2.50s should feel inevitable as we’ve seen lows near $2.66 three times in the past 3 weeks.

Crude oil inventories saw another large build, swelling by more than 7.6 million barrels, despite a surge in export activity that sent more than 32 million barrels of crude out of the country last week. The combined build in crude oil stocks reported over the past two weeks totals nearly 24 million barrels, even though those same reports show strong export growth and stagnant imports. Refinery runs and crude production can’t explain the big inventory gains since both were flat last week, leaving many to wonder how a government report could possibly have such confusing and misleading data. 

Don’t worry, the EIA makes it perfectly clear by reporting a 2 million barrel/day adjustment to US Crude oil supplies in each of the past 2 weeks. 2 million barrels/day X 14 days = 28 million barrels of oil that the agency has in its compiled reports and is saying has no idea how it got there.  

If you’re enjoying the confusing government data theme today, check out the PCE report that shows inflation continues to run hot and has stock markets pulling back yet again since it reinforces the idea that the FED won’t be letting up its tightening any time soon.

Los Angeles diesel basis values dropped 11 cents on Thursday, even though PADD 5 diesel inventories remain well below the 5-year seasonal range and multiple refinery issues continue to limit output in the region. Soft demand was likely the culprit in that large basis slide as 6” of rain and the first blizzard warning in parts of California in more than a decade are certainly not encouraging trucks to be on the road.

Total US Diesel inventories climbed back into their 5-year seasonal range for the first time in a year and moved above prior year levels for the first time since 2021. Diesel demand remains at very low levels for this time of the year, with minimal heating demand getting much of the blame for the worst start to a year for diesel consumption in a decade.

The US exported nearly 6 million barrels of refined products last week, but most of it wasn’t gasoline and diesel. In fact, the charts below show propane and propylene exports were on part with gasoline and diesel, demonstrating the growing importance of HGLs in the global energy mix.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.

Market Talk Update 02.24.2023

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Pivotal Week For Price Action
Market TalkTuesday, Mar 28 2023

Energy Markets Are Holding Steady To Start Tuesday’s Session

Energy markets are holding steady to start Tuesday’s session after oil prices had their biggest rally of the year Monday. 

Reports that Iraq had halted shipments on the Ceyhan pipeline through Turkey, which removed 400,000 barrels/day of exports from the world market temporarily were given much of the credit for the big move higher. The rally in oil came just a week after large speculators reduced their bets on higher prices to the lowest level in 7 years, providing yet another reminder of why the moves made by hedge funds is often seen as a contrary indicator of market direction. 

Refined products touched a 2-week high overnight before pulling back to modest losses this morning but remain in the middle of their March trading range, which sets the stage for more choppy back and forth action as markets around the world search for direction and worry about what’s coming next.

California approved the bill that will create a new committee within the state’s energy commission that will oversee oil refiners and potentially levy penalties on them if they’re deemed to be making too much money on consumers. The state has already had a handful of refineries close down in the past 6 years, with another scheduled to close and convert to an RD facility in early 2024, and there’s no doubt that this new law may be yet another reason for the remaining facilities to consider closing their doors as well, which many will see as a victory.    

The Dallas FED’s manufacturing Survey showed a small increase in production in March, after February showed a contraction for the first time since the COVID lockdowns. The business outlook remains mixed however as many noted uncertainties around the banking situation, along with continued supply chain and labor challenges as factors hindering growth. 

New competitor for feedstocks? A moose breached the security gates at the refinery in Sinclair Wyoming Monday. No word if the animal was just lost, or searching for the soybeans that are now being used to make renewable diesel at that facility.

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

Pivotal Week For Price Action
Market TalkMonday, Mar 27 2023

Energy Futures Rebound to Start the Week

Energy futures are bouncing to start the week, following through on a recovery rally that saw Friday’s early losses wiped out and salvaged weekly gains.

Money managers have been bailing out of their bets on higher energy prices in recent weeks, and as the CFTC’s data is finally catching up after 2 months of delays, we can finally see those figures the same week they’re compiled. The past two weeks alone have seen a reduction of more than 100,000 WTI contracts held by large speculators, bringing the total net length to the lowest level since January 2016. 

The COT data also shows large reductions in producer hedging during this latest selloff in a sign that the industry may believe that prices won’t stay this low for long.  

A WSJ article over the weekend highlighted how the options traders may have exacerbated the push lower over the past two months and could help spark a recovery rally later in the year.

Baker Hughes reported an increase of 4 oil rigs drilling in the US last week, snapping a 5-week slide that had pushed drilling activity to a 9-month low.  The Permian basin accounted for 3 of the 4 rigs added last week.

Iraq won a 9-year lawsuit against Kurdish oil shipments, and that result has temporarily halted shipments of oil from the autonomous Kurdish region via the Turkish Ceyhan pipeline system.

Saudi Arabia announced an expansion of its partnership with China, increasing its multi-billion investment in new refining infrastructure in the world’s largest oil buyer. We’ve already seen multiple new refinery projects come online in both countries over the past two years, and this new agreement will continue the trend of additional capacity in the eastern hemisphere while the west continues to see declines.

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

Pivotal Week For Price Action
Market TalkFriday, Mar 24 2023

Correlation Confusion Between Oil, Stock, And Currency Markets; US Drops Plan to Replenish SPR

Oil prices are leading a slide lower to end the week after the US government walked back plans to buy oil since it’s dropped below $70, and the latest ripples in the banking crisis push stocks lower and the dollar sharply higher after it touched a 2-month low Thursday. 

Even though the correlation between energy prices and stocks or currencies has been weak lately, or even opposite of normal in the case of the dollar, there still seems to be more influence lately as the fear trade has funds flowing back and forth between markets depending on whether or not risk-taking is in style that day. 

The US Energy Secretary told congress that the agency won’t be refilling the SPR this year, despite previous pledges by the White House to buy oil when it dropped to $70, since the agency is still working through congressionally mandates sales of oil from the reserve.  That news seems to be contributing to the downside in WTI and Brent prices as traders hoping to front run the DOE are now going to have to wait a while longer to do so.

Even though ULSD prices are up 17 cents from the lows set last week, they’re still on the verge of their lowest weekly settlement since January of 2022 should prices end the day near current levels. Given that this week’s recovery rally failed to take out the highs seen in previous weeks, charts continue to look bearish for distillates. Another run at $2.50 looks more likely and a break below that level, when the May contract takes the prompt position in another week, may be a foregone conclusion.

As has been the case for most of March, RBOB look as bad as ULSD on the charts, although that certainly isn’t helping so far today with gasoline futures outpacing the losses in diesel.  Unless we see RBOB end the day down a dime or more (it’s down a nickel currently) the weekly trend will still be higher, and the charts will still be giving favor to another push towards $2.80-$3 this spring.

The LA spot market saw a healthy bounce in gasoline basis values Thursday following multiple refinery upsets in the area reported to local regulators. Meanwhile, the California Governors new plan to create an oversight committee to prevent price gouging – a major change from earlier proposals to levy a new tax on oil producers and refiners – passed through the Senate on Thursday. If this new bill is fully passed, it will allow the Governor to appoint that committee himself. A 1,000-page prediction of how that plan will work is available for less than $10 on Amazon.

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