Conflicting Headlines And Inventory Data Points Continue To Confound The Market
Energy contracts had their biggest 1-day selloff since July on Wednesday as a steady round of selling that started Tuesday afternoon continued throughout the day. Just when it looked like that the bulls had thrown in the towel and we were in for a technical breakdown, prices have rallied sharply overnight, wiping out most of Wednesday’s big losses as conflicting headlines and inventory data points continue to confound the market.
No official announcement from OPEC yet, but most reports continue to show expectations that the cartel will stick with its current output plan, in spite of pressure from world leaders to increase more.
Headlines about Iran seem to be causing at least some of the whiplash in prices, with news of a return to nuclear negotiations getting credit for some of Wednesday’s selling, followed by Iran claiming that the US had tried to seize one of its oil tankers in the Sea of Oman reminding everyone that negotiating with Iran is a fool’s errand challenging.
Equity markets have rallied to new record highs after the FOMC made it clear that they still believe inflation levels at their highest levels in 30 years are still transitory, and that the FED can be patient with interest rate hikes. Even though the correlation between energy and equity markets has been close to zero in recent weeks, the market’s reaction to that statement does seem to take a fear-induced selloff off the table for now.
Who would ever guess that on a day when the DOE reported US Gasoline inventories reached a 4 year low, and PADD 1 inventories (home to the NYMEX delivery hub) reached a 7 year low, would also be the day when gasoline futures had their biggest daily drop in nearly 4 months. Of course, given the size of the rally over the past 1, 4 and 18 months, this seems a little bit like the market’s tendency to buy the rumor and sell the news, in this case pertaining to tightening supplies. This is also a good reminder that the futures market is less concerned about where we are today, than where we are headed, and with seasonal factors all pointing to gasoline stocks building steadily over the coming months, and high prices surely to dent consumption, it’s getting harder to see a reason to keep on betting on prices above a 7 year high.
Despite the big bounce this morning, charts near term continue to favor lower prices as refined products are setting lower lows and lower highs on the daily charts ever since prices peaked in late October. The $2.40 range for RBOB and $2.50 area for ULSD look to be good near term pivot points to watch. If prices can climb back above those levels, there’s a chance we see another run at the October highs, but if they can’t, another big move lower seems likely.
One more bearish factor to consider, it wasn’t just futures that were selling off heavily Wednesday, most cash markets saw basis values decline as well, pushing cash markets even further down on the day. When the big physical traders aren’t believing what the robots are doing the exchange, we’ll often see those diffs move contrary to futures, but yesterday’s action suggests that the concern of the winter demand doldrums for gasoline is real. No such concerns for ethanol prices however as spots continue to surge to record highs across the country, even as US ethanol output remains well above normal levels. While the ethanol forward curve has become murky due to a lack of trading in those futures, it looks like there’s 50-60 cents of backwardation between now and the end of the year, which means whenever the ethanol logistics logjam breaks there’s going to be a huge move lower in a hurry.
Latest Posts
Wholesale Gasoline Prices Across Most Of The US Reached Their Lowest Levels In 2-Years Thursday
West Coast Gasoline Inventories Dropped Sharply Last Week And Are Now Holding Below Their 5-year Seasonal Range
Week 49 - US DOE Inventory Recap
Saudi Arabia Lowered Its Official Prices To Asian Customers Tuesday, The First Price Cut In 7-Months
Social Media
News & Views
View All
Wholesale Gasoline Prices Across Most Of The US Reached Their Lowest Levels In 2-Years Thursday
Wholesale gasoline prices across most of the US reached their lowest levels in 2-years Thursday, after the morning recovery rally fizzled in the afternoon. RBOB gasoline futures dipped below the $2 mark briefly, before settling just above it, while cash prices in several major markets dropped below $1.80 for the first time since December 2021, while crude oil and diesel prices reached fresh 6-month lows.
The bulls are giving it another go this morning, pushing futures up 5-cents for gasoline and 6- cents for diesel, trying to snap the streak of 6-straight daily losses for ULSD, although we’ll need to see products double their early gains to erase the weekly decline.
Energy prices didn’t react much initially to the November Payroll report that estimated 199,000 jobs were added during the month, while the official unemployment rate dipped to 3.7% from 3.9% and the U-6 rate dropped to 7% from 7.2%. Equity futures moved modestly lower immediately following that report as labor market resilience throws cold water on recent hopes for interest rate cuts, but as has often been the case for several months now, energy prices are managing to shrug off the move in stocks.
Big negative basis values continue to be the theme across the Gulf Coast and Mid-Continent, with USGC, Group 3 and Chicago all trading at 20+ cent discounts to futures for both gasoline and diesel. Those negative values are weighing on refining margins with USGC crack spreads approaching their lowest levels in 2 years, which will almost certainly curtail some refinery run rates through the winter months. East Coast refiners meanwhile are finding themselves in a strong position as shipping bottlenecks keep PADD 1 inventories low and their crack spreads remain in the mid $20/barrel range despite the recent pull back in futures.
The long-awaited Dangote refinery is reportedly receiving its first cargo of crude oil today. That new 650mb/day refinery would be the world’s largest single train refinery, but is already years behind schedule, and many still doubt its ability to run anywhere near capacity. We’ve already seen the impact Kuwait’s 615mb/day Al Zour refinery can have on markets across the Atlantic basin, so whether or not the Nigerian facility can ramp up run rates could have a major influence on product prices next year.
Click here to download a PDF of today's TACenergy Market Talk.
West Coast Gasoline Inventories Dropped Sharply Last Week And Are Now Holding Below Their 5-year Seasonal Range
Energy futures are bouncing this morning as buyers are finally stepping in after RBOB futures touched a 2-year low Wednesday, while WTI and ULSD both hit their lowest levels in 5 months. There are headwinds both fundamentally and technically, but so far, the market isn’t acting like a collapse is imminent and as the table below shows this is right about the time when gasoline prices bottomed out the past two years.
Saudi Arabia and Russia released a joint statement this morning, following Vladimir Putin’s trip to the Kingdom, urging OPEC & friends to join their output cut agreement, which takes the risk of a price war that could send prices plunging (as we’ve seen twice in the past decade) off the table for now and seems to be contributing to WTI climbing back above the $70 mark and Brent getting back above $75.
The DOE reported a healthy bounce back in fuel demand estimates after the annual Thanksgiving holiday hangover, but that wasn’t enough to prevent refined product inventories from continuing to build as refiners continue to return from maintenance and increase run rates. The builds in gasoline inventories particularly suggest it could be a tough winter for some refiners who are already having some challenges clearing their extra barrels.
The exception on gasoline comes in PADD 5. West Coast gasoline inventories dropped sharply last week and are now holding below their 5-year seasonal range, which is dramatically lower than year-ago levels which set the top end of that range. Those tight stocks help explain why West Coast values are the most expensive in the country by a wide margin and leave little cushion to deal with unplanned maintenance which helps explain the jump in CARBOB basis values this week.
On the diesel side of the barrel, the recent themes of tight supplies on the East Coast, ample supply in the Midwest and Gulf Coast, and a Wild Card on the west coast since we don’t see Renewable Diesel inventories in the weekly figures continues. Take a look at the PADD 2 gasoline and diesel charts below and it’s easy to understand why we’re seeing cash prices in both Group 3 and Chicago approaching multi-year lows with 20-30 cent discounts to futures becoming the rule rather than the exception.
The market seemed to shrug off the drop in total US crude oil stocks, as Cushing OK stocks increased for a 7th straight week, and the decline was largely driven by the largest negative adjustment value on record, which went from a positive 1.2 million barrels/day last week to negative 1.4 million barrels/day this week. The EIA has done a lot of work trying to fix the bugs in its report system and to better define what exactly it’s reporting, but clearly there’s still more work to be done.