China Considering Lifting Quarantine Protocols Has Awakened Oil Bulls This Morning

Market TalkThursday, Oct 20 2022
Pivotal Week For Price Action

China considering lifting quarantine protocols has awakened oil bulls this morning: American and European oil benchmarks are showing +$1 gains to start the day. The prompt month RBOB contract is following suit, tacking on 4 cents, while November ULSD contract, on the other hand, is continuing to show signs that the bubble has popped and is extending yesterday’s losses by 3 cents so far in early morning trading.

President Biden’s announcement that the US will seek to sell the last portion of the original 180 million barrel SPR sale was met with mixed reactions yesterday. Some view it as the president’s latest attempt to curb high energy prices and inflation while others are labelling the announcement as yet another round of political machinations aimed at boosting his approval rating ahead of the looming mid-term elections. More importantly, perhaps, was Biden’s claim that the White House will look to replenish the Strategic Oil Preserve around $70, effectively putting in a floor for WTI prices at that level.  

The Department of Energy reported a 1.7 million barrel drop in national crude oil inventories yesterday, coming close to the American Petroleum Institute’s estimate of a 1.3 million barrel drop published Tuesday. Gasoline and diesel inventories had a more tame move, both dropping and gaining around 100,000 barrels, respectively. Diesel statistics saw an increase in imports and outputs, and a drop in exports and demand, leading to a 7% increase in days of forward cover. While these figures are far from boasting a recovery in national distillate supply, they surely aren’t hurting the downward price trend that has shaved 30 cents off the November HO contract in the last three days.

Well, that didn’t take long: UK Prime Minister Liz Truss has resigned, becoming the shortest-tenured PM since the position was created. While the announcement centers around her failure to stabilize market conditions by cutting taxes and increase government spending, it is unclear how/if this will affect the nation’s latest stance on alleviating high electricity and natural gas prices this winter.

The Energy Information administration told us what we already know in a note published this morning: homes using heating oil to stay warm are going to pay more this winter. 27% was the pegged increase in expenditure on heating (which doesn’t account for inflation but will definitely drive it) due to higher energy prices and a colder-than-average winter. The diesel inventory charts below, showing that US stockpiles have been below the 5-year range all year can shed some light on why prices are elevated.

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Market Talk Update 10.20.22

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Pivotal Week For Price Action
Market TalkFriday, Jun 9 2023

Refined Products Bounce Back And Forth Across The Break-Even Line To Start Friday’s Trading

The choppy action continues for energy markets with refined products bouncing back and forth across the break-even line to start Friday’s trading after some big swings Thursday.

RBOB futures led the rollercoaster ride Thursday, trading up 4 cents in the early morning hours, only to see those gains turn into 10 cent losses mid-morning, and then erasing most of those losses in the early afternoon following an ENT report of unplanned maintenance at the largest refinery on the East Coast.  

The selling portion of the ride was blamed on a combination of an increase in jobless claims, and the disruptive impacts of the Canadian wildfires on the major population centers along the East Coast. While air traffic has been disrupted, so far there are not any reports of delays in ship traffic around the New York Harbor, and the strong basis and time spreads we’ve seen in NY have been easing this week, so it appears that this event is more concerning to the demand side of the equation than supply. 

From a technical perspective, it’s not surprising to see this type of back-and-forth action as most petroleum contracts look to be stuck in neutral territory on the charts, which encourages trading programs to sell as prices get towards the top end of a range, and buy when it gets to the low end. 

The Atlantic Hurricane season is off to a quiet start with no tropical development expected over the next week, but NOAA did issue an El Nino advisory Thursday that suggests the warm-water pattern in the Pacific could reach “supersized” levels and create all sorts of disruptive events. Perhaps most notable in the report is that forecasters don’t believe this year’s El Nino will have the same dampening impact on Atlantic hurricanes due to record warm temperatures in the water. Here’s a brief recap in case you missed the most memorable El Nino from 25 years ago. 

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Pivotal Week For Price Action
Market TalkThursday, Jun 8 2023

Gasoline Futures Rally Despite Inventory Builds, Increased Throughput

Gasoline futures led another strong rally in the energy complex Wednesday and continued marching higher overnight before pulling back to near break-even levels around 7:45am central.

The RBOB contract has now wiped out the post-Memorial Day selloff, and erased the losses from the contract roll to July, setting up another test of the May highs at $2.73. If that resistance breaks, there’s a good chance we see another run at the $2.90 level, but if it holds we are probably still stuck in a sideways pattern as we move through the summer months.  West Coast gasoline prices meanwhile have reached a 3-month high as surging basis values compound the move in futures. 

The rally came despite healthy inventory builds for refined products and strong refinery runs across all 5 PADDs reported last week, with traders (or their algorithms) appearing to focus instead on healthy demand estimates in the DOE’s weekly status report. Gasoline also saw healthy exports last week, while diesel shipments overseas continued their decline which has helped keep downward pressure on diesel prices, which is essentially the polar opposite of what we were experiencing a year ago.

Lies, damned Lies and statistics:  PADD 3 refinery utilization hit 98.8% of the official capacity figure last week, which would mark a 5 year high, except the numbers are wrong. The DOE still isn’t including recent capacity additions of almost 300mb/day in those stats, so the actual figure is about 3% lower. Don’t worry though, the lack of accurate data probably isn’t intentional. The DOE recently announced it was suspending data collection for some of its monthly reports as the agency is still struggling to overcome the IT Systems failure they experienced a year ago. Add this to the realization that the official crude production and petroleum demand figures have been incorrect due to a lack of clarity surrounding condensate production that comes along with oil output.   

Speaking of which, the official US Oil output figure surged to the highest levels since the COVID lockdowns began more than 3 years ago last week. No word from the EIA if this means actual production increased, or if they’ve just changed the way they’re reporting the molecules coming out of the ground.

Irving Oil released a statement highlighting a strategic review of the company, that could include selling the business that’s been held by the Irving family for nearly 100 years. The Irving Refinery in New Brunswick is Canada’s largest at 300mb/day and is the largest importer of fuels into the northeastern US. Critics are arguing that the review is an attempt to politicize Canada’s Clean Fuel Regulation that could weigh on the refinery’s profitability when it goes into full effect in July or could simply incentivize the facility to send more product to the US.

RIN values saw their first bounce in a couple of weeks, with both D6 and D4 values climbing back above the $1.40 mark after their recent slide from the mid $1.50s. We’re still 6 days away from the EPA’s deadline to issue the final RFS ruling for the next couple of years.

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

Pivotal Week For Price Action
Market TalkWednesday, Jun 7 2023

Energy 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.