Choppy Morning For Energy Prices, But The Volatility Continues To Slowly Diminish
It’s been another choppy morning for energy prices, but the volatility continues to slowly diminish, with “only” 10-12 cent price swings for refined products, compared to the 30-50 cent swings we got used to seeing in March.
So far the biggest story of the day is that Natural gas continues to flow from Russia to Europe despite threats to cut off supplies today for countries that wouldn’t pay in Rubles. An apparent loophole in the Russian ruble rule may allow both sides to keep those supplies moving, without “giving in” to the other, which seems to be helping alleviate some concerns of an immediate supply shortage.
Yesterday’s big news was the biggest planned release of US strategic petroleum reserves on record, after OPEC & Russia signaled they were not changing their supply plans despite pleading from the US and other nations.
While the long term impact of this SPR release (which accounts for less than 2 days’ worth of global demand) is debatable, it has certainly taken some of the backwardation out of the forward curve, and may become one of the regulatory arbitrage deals in history for buyers capable of utilizing that crude today and paying it back later at much lower prices.
That’s not a joke. The first day of April trading brings with it the first day of May ULSD as the prompt diesel contract, and it opened up trading some 35 cents below where the April futures contract ended. What does that mean for you? If you’re looking at a continuous chart you may see a huge drop in futures prices, but in reality, your cash prices are pointing to a 4 cent gain at the moment.
While the world worries about how they’ll replace energy supplies, Russia is struggling to cope with simultaneous inventory excesses and shortages within its borders. More Russian refineries are signaling that they’ll be forced to cut run rates due to a lack of storage as their buyers have disappeared, leading to the biggest drop in output on record in that country. On the other hand, Russia’s military continues to grapple with a lack of fuel supply, which is probably going to get worse after a Rosneft fuel terminal just 40 miles from the Ukraine border was reportedly attacked.
March was another strong month for job growth in the US, according to the estimate just released another 431,000 positions were added, and the February and March estimates were revised even higher by a combined 95,000. That strength helped lower both the headline and U-6 unemployment rates to pre-pandemic levels of 3.6% and 6.9% respectively. Equity markets did not react in a big way to that report, but energy futures did seem to find a bid just after its release.
Click here to download a PDF of today's TACenergy Market Talk.
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Gasoline Futures Are Leading The Way Lower This Morning
It was a volatile night for markets around the world as Israel reportedly launched a direct strike against Iran. Many global markets, from equities to currencies to commodities saw big swings as traders initially braced for the worst, then reversed course rapidly once Iran indicated that it was not planning to retaliate. Refined products spiked following the initial reports, with ULSD futures up 11 cents and RBOB up 7 at their highest, only to reverse to losses this morning. Equities saw similar moves in reverse overnight as a flight to safety trade soon gave way to a sigh of relief recovery.
Gasoline futures are leading the way lower this morning, adding to the argument that we may have seen the spring peak in prices a week ago, unless some actual disruption pops up in the coming weeks. The longer term up-trend is still intact and sets a near-term target to the downside roughly 9 cents below current values. ULSD meanwhile is just a nickel away from setting new lows for the year, which would open up a technical trap door for prices to slide another 30 cents as we move towards summer.
A Reuters report this morning suggests that the EPA is ready to announce another temporary waiver of smog-prevention rules that will allow E15 sales this summer as political winds continue to prove stronger than any legitimate environmental agenda. RIN prices had stabilized around 45 cents/RIN for D4 and D6 credits this week and are already trading a penny lower following this report.
Delek’s Big Spring refinery reported maintenance on an FCC unit that would require 3 days of work. That facility, along with several others across TX, have had numerous issues ever since the deep freeze events in 2021 and 2024 did widespread damage. Meanwhile, overnight storms across the Midwest caused at least one terminal to be knocked offline in the St. Louis area, but so far no refinery upsets have been reported.
Meanwhile, in Russia: Refiners are apparently installing anti-drone nets to protect their facilities since apparently their sling shots stopped working.
Click here to download a PDF of today's TACenergy Market Talk.
The Sell-Off Continues In Energy Markets, RBOB Gasoline Futures Are Now Down Nearly 13 Cents In The Past Two Days
The sell-off continues in energy markets. RBOB gasoline futures are now down nearly 13 cents in the past two days, and have fallen 16 cents from a week ago, leading to questions about whether or not we’ve seen the seasonal peak in gasoline prices. ULSD futures are also coming under heavy selling pressure, dropping 15 cents so far this week and are trading at their lowest level since January 3rd.
The drop on the weekly chart certainly takes away the upside momentum for gasoline that still favored a run at the $3 mark just a few days ago, but the longer term up-trend that helped propel a 90-cent increase since mid-December is still intact as long as prices stay above the $2.60 mark for the next week. If diesel prices break below $2.50 there’s a strong possibility that we see another 30 cent price drop in the next couple of weeks.
An unwind of long positions after Iran’s attack on Israel was swatted out of the sky without further escalation (so far anyway) and reports that Russia is resuming refinery runs, both seeming to be contributing factors to the sharp pullback in prices.
Along with the uncertainty about where the next attacks may or may not occur, and if they will have any meaningful impact on supply, come no shortage of rumors about potential SPR releases or how OPEC might respond to the crisis. The only thing that’s certain at this point, is that there’s much more spare capacity for both oil production and refining now than there was 2 years ago, which seems to be helping keep a lid on prices despite so much tension.
In addition, for those that remember the chaos in oil markets 50 years ago sparked by similar events in and around Israel, read this note from the NY Times on why things are different this time around.
The DOE’s weekly status report was largely ignored in the midst of the big sell-off Wednesday, with few noteworthy items in the report.
Diesel demand did see a strong recovery from last week’s throwaway figure that proves the vulnerability of the weekly estimates, particularly the week after a holiday, but that did nothing to slow the sell-off in ULSD futures.
Perhaps the biggest next of the week was that the agency made its seasonal changes to nameplate refining capacity as facilities emerged from their spring maintenance.
PADD 2 saw an increase of 36mb/day, and PADD 3 increased by 72mb/day, both of which set new records for regional capacity. PADD 5 meanwhile continued its slow-motion decline, losing another 30mb/day of capacity as California’s war of attrition against the industry continues. It’s worth noting that given the glacial pace of EIA reporting on the topic, we’re unlikely to see the impact of Rodeo’s conversion in the official numbers until next year.
Speaking of which, if you believe the PADD 5 diesel chart below that suggests the region is running out of the fuel, when in fact there’s an excess in most local markets, you haven’t been paying attention. Gasoline inventories on the West Coast however do appear consistent with reality as less refining output and a lack of resupply options both continue to create headaches for suppliers.