Combination Of Bullish Technical And Fundamental Factors To Push Oil And Diesel Prices To 7 Year Highs

Market TalkTuesday, Jan 18 2022
Pivotal Week For Price Action

The rally continues in energy markets as a combination of bullish technical and fundamental factors combine to push oil and diesel prices to 7 year highs. For ULSD, this would mark a record setting 12th straight trading session with gains, but since yesterday’s holiday means there was no settlement published, it will only count as 11.

“There’s no such thing as a triple top.” In October 2018 Brent crude reached a high of $86.74 before falling to $50 in December. In October of 2021 Brent topped out at $86.70 before dropping to $65 in December, and yesterday Brent topped out at $86.71. The old, and often disputed, trading adage proved true overnight, with Brent rallying north of $88, which now opens the door for another move higher, with a rally to $100 looking certainly possible. ULSD is looking similarly bullish on the charts, with a push towards $2.80 and even $3 looking more likely now that prices have enthusiastically followed through on their breach of technical resistance.

It’s not just the charts that look supportive of a sudden spike either, the escalation of tensions in Ukraine seem to be contributing to some panic buying as the risk of Russia using oil and gas exports as a weapon seems to be growing. In addition to the large amounts of natural gas which can indirectly push up oil and product prices when replacement options are needed, Russia exports roughly 2 million barrels/day of oil to other parts of Europe, that will no doubt be threatened if the conflict continues to escalate. 

Cause or Effect? The combination of bullish factors has drawn large amounts of fund money back into the energy arena in recent weeks, which can create a snowball effect as bandwagon jumping begets more buying. So what might stop the rally? Short term there are plenty of overbought signals on the charts, so trading algorithms might start selling heavily at any sign of a pullback. Longer term, the stock market may be foreshadowing the end of the bull run as it continues to pull back under the weight of higher interest rates, and in some cases, higher fuel prices.  Unfortunately, that sets up a scenario where a supply-fear price spike may lead to a longer term demand collapse and we end up seeing lower fuel prices because the economy starts to shrink.

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Market Talk Update 01.18.2022

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Market TalkWednesday, Apr 24 2024

Energy Markets Trading Quietly In The Red As Ethanol Prices Rally To Five-Month High

Energy markets are trading quietly in the red to start Wednesday’s session after a healthy bounce Tuesday afternoon suggested the Israel-Iran-linked liquidation had finally run its course.

There are reports of more Ukrainian strikes on Russian energy assets overnight, but the sources are sketchy so far, and the market doesn’t seem to be reacting as if this is legitimate news.

Ethanol prices have rallied to a 5-month high this week as corn and other grain prices have rallied after the latest crop progress update highlighted risks to farmers this year, lower grain export expectations from Ukraine, and the approval of E15 blends this summer despite the fact it pollutes more. The rally in grain and renewables prices has also helped RIN values find a bid after it looked like they were about to test their 4-year lows last week.

The API reported small changes in refined product inventories last week, with gasoline stocks down about 600,000, while distillates were up 724,000. Crude oil inventories increased by 3.2 million barrels according to the industry-group estimates. The DOE’s weekly report is due out at its normal time this morning.

Total reported another upset at its Port Arthur refinery that’s been a frequent flier on the TCEQ alerts since the January deep freeze knocked it offline and damaged multiple operating units. This latest upset seems minor as the un-named unit impacted was returned to normal operations in under an hour. Gulf Coast basis markets have shrugged off most reports of refinery upsets this year as the region remains well supplied, and it’s unlikely we’ll see any impact from this news.

California conversely reacted in a big way to reports of an upset at Chevron’s El Segundo refinery outside of LA, with CARBOB basis values jumping by more than a dime. Energy News Today continued to show its value by reporting the upset before the flaring notice was even reported to area regulators, proving once again it’s ahead of the curve on refinery-related events. Another industry news outlet meanwhile struggled just to remember where the country’s largest diesel seller is located.

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

Pivotal Week For Price Action
Market TalkTuesday, Apr 23 2024

The Struggle For Renewable Producers Continues As A Rapid Influx Of Supply And Crashing Credit Prices Make Biodiesel

The sigh of relief selloff continues in energy markets Tuesday morning, with gasoline prices now down more than 20 cents in 7 sessions, while diesel prices have dropped 26 cents in the past 12. Crude oil prices are within a few pennies of reaching a 1 month low as a lack of headlines from the world’s hot spots allows some reflection into the state of the world’s spare capacity for both oil and refined products.

Gasoline prices are trading near a 6-week low this morning, but still need to fall about another nickel in order to break the weekly trendline that pushed prices steadily higher since December. If that trend breaks, it will be safer to say that we saw the end of the spring gasoline rally on April 12th for the 2nd year in a row. Last year RBOB futures peaked on April 12 at $2.8943 and bottomed out on May 4th at $2.2500. The high (at this point) for this year was set on April 12th at $2.8516, and the low overnight was $2.6454.

It’s not just energy commodities that are seeing an unwind of the “flight to safety” trade: Gold prices had their biggest selloff in 2 years Monday and continue to point lower today. Just how much money poured into commodities in the weeks leading up to the direct confrontation between Israel and Iran is unclear, but we have seen in year’s past that these unwind-events can create a snowball effect as traders can be forced to sell to cover their margin calls.

Supply > Demand: The EIA this morning highlighted the record setting demand for natural gas in the US last year, which was not nearly enough to offset the glut of supply that forced prices to a record low in February. A shortage of natural gas in Europe was a key driver of the chaotic markets that smashed just about every record in 2022, and an excess of natural gas supply in Europe and the US this year is acting as a buffer, particularly on diesel prices.

The struggle for renewable producers continues as a rapid influx of supply and crashing credit prices make Biodiesel, RD and SAF unprofitable for many. In addition to the plant closures announced in the past 6 months, Vertex Energy reported Monday it’s operating its Renewable Diesel facility in Mobile AL at just 50% of capacity in Q1. The truly scary part for many is that the $1/gallon Blender's tax credit ends this year and is being replaced by the “Clean” Fuel production credit that forces producers to prove their emissions reductions in order to qualify for an increased subsidy. It’s impossible to say at this point how much the net reduction will be for domestic producers, but importers will get nothing, and at current CI values, many biodiesel producers may see their “blend credit” cut by more than half.

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