Demand Fears Are Outpacing Supply Fears To Start Tuesday’s Trading As China Has Initiated Yet Another Round Of COVID Crackdowns

Market TalkTuesday, Aug 30 2022
Pivotal Week For Price Action

Demand fears are outpacing supply fears to start Tuesday’s trading as China has initiated yet another round of COVID crackdowns, shutting down markets and cities across the world’s largest oil importer. Gasoline prices are down a dime in the early going, and crude oil prices have already erased most of Monday’s big gains.   

Diesel prices are resisting the big pull lower from crude and gasoline today – after dropping by a dime Monday – following reports that Russia is cutting more natural gas deliveries, this time to France, as Moscow continues to use its most powerful weapon in its war on Europe. 

Speaking of which, a WSJ article this week highlights that even though Russia may be fumbling in its shooting war in Ukraine, its energy revenue has continued to grow as the world has shifted to find new ways to get their oil and products to market as creative traders find no shortage of loopholes in the current sanctions. 

European leaders agreed to meet next week to come up with emergency plans to deal with runaway electricity prices that are pushing households across the continent to the brink of bankruptcy or worse. Price caps for natural gas are one of main ideas being floated to deal with this issue temporarily, even though price caps can be counterproductive as they remove the incentive for some producers to rush to bring more output online. 

BP’s Whiting refinery outside of Chicago has initiated restart, and could be back up and running by the weekend if all goes well, which is easing concerns of a regional supply crunch that prompted the EPA to waive summer RVP specs a few weeks early.  

While refinery capacity losses have justifiably grabbed many headlines over the past year, ExxonMobil has been quietly expanding one of its facilities, in Beaumont TX, and is ready to bring 250,000 barrels/day of new capacity online early next year. That additional capacity is the equivalent of one above-average size refinery, and will effectively replace the 260,000 barrels/day facility that was killed by Hurricane Ida last year

There are very good odds we’ll have a named storm heading towards the US by Labor day, with the NHC still giving 80% odds of development for a system moving across the Atlantic.  The good news is that forecast models suggest there are low odds that this storm will hit the US, and will more likely stay out to sea as it moves north parallel to the East Coast next week. A 2nd system is currently given 40% odds of development in the next 5 days as it moves out to the Atlantic, and long range models suggest we should expect a new system every few days for the next several weeks as conditions for development improve.

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Market Talk Update 08.30.22

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Market TalkWednesday, Jul 17 2024

Energy Markets Are Trying To Find A Price Floor After Gasoline And Crude Oil Staged A Healthy Bounce To Minimize The Heavy Losses

Energy markets are trying to find a price floor after gasoline and crude oil staged a healthy bounce to minimize the heavy losses we saw early in Tuesday’s session. WTI is leading the move higher early Wednesday, up nearly $.90/barrel in the early going, while RBOB prices are up just under a penny.

Diesel continues to look like the weak link in the energy chain both technically and fundamentally. Tuesday the API reported a 4.9 million barrel build in diesel stocks, while gasoline inventories were only up 365,000 barrels, and crude oil stocks declined by more than 4.4 million barrels. The DOE’s weekly report is due out at its normal time this morning and it’s likely we’ll see a reduction in oil output and PADD 3 refining runs thanks to shut ins ahead of Hurricane Beryl, but otherwise the storm appears to be a relative non-issue with only 1 notable refining hiccup, that wasn’t even as bad as a midwestern Thunderstorm.

Chicago basis values rallied Tuesday after reports that Exxon had shut down the 250mb/day Joliet refinery following severe storms that knocked out power to the area Sunday. RBOB differentials surged nearly 9 cents on the day, while diesel diffs jumped more than a nickel. With 3 large refineries in close proximity, the Chicago cash market is notoriously volatile if any of those facilities has an upset. Back in May there was a one-day spike in gasoline basis of more than 50 cents/gallon after Joliet had an operating upset so don’t be surprised if there are bigger swings this week if the facility doesn’t come back online quickly.

Moving in the opposite direction, California basis values are heading the opposite direction with the transition to August scheduling pressuring CARBOB differentials in LA and San Francisco to their biggest discounts to prompt RBOB futures in more than 18 months. Gasoline imports into PADD 5 have held well above average levels over the past 2 months, which has more than offset the loss of the P66 Rodeo refinery’s output after it completed its conversion to RD production, in another sign of how growing refining capacity in China and other Asian countries may become more influential to the US. California regulators may also pat themselves on the back that their new plans to force refineries to report their gross profit monthly, in addition to the rules requiring all bulk trades in the state be reported must be driving the lower gasoline differentials, assuming they figure out what a basis differential is.

Meanwhile, California’s Carbon Allowance values have tumbled to their lowest levels in a year after a CARB presentation last week suggested the agency would be delaying long-anticipated tightening of the Cap and Trade program until 2026.

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

Pivotal Week For Price Action
Market TalkTuesday, Jul 16 2024

The Sell-Off In Energy Markets Continues, With Refined Products Reaching Their Lowest Levels In A Month Early In Tuesday’s Session

The sell-off in energy markets continues, with refined products reaching their lowest levels in a month early in Tuesday’s session. Reports of slowing growth in China, the world’s largest oil purchaser, is getting much of the credit for the slide in prices so far this week, although that doesn’t do much to explain why refined products are outpacing the drop in crude.

ULSD futures are leading the early move lower, trading down a nickel on the day, and marking a 19 cent drop since July 4th. There’s not much in the way of technical support for ULSD, so don’t be surprised if this sell-off continues to pick up steam.

With today’s slide, RBOB futures are down 17 cents from where they were trading on July 4th, and are just a couple of cents from testing their 200-day moving average. Should that support break, it looks like there’s a good chance to test the June lows around $2.29.

Physical markets are not offering any strength to the futures market with all 6 of the major cash markets for diesel across the US trading at a discount to ULSD futures, while only 1 gasoline market is trading at a premium to RBOB futures. That combination of weakness in futures and cash markets is going to be troubling for refiners who are seeing margins reduce during what is traditionally a strong time of year.

The EIA highlighted the energy trade between the US and Mexico in a report Monday, showing that despite so many claims of energy independence from Mexican officials, the actual amount of refined fuels and natural gas bought from the US continues to increase. That’s good news for many US refiners who have become more dependent on Mexican purchases to find a home for their output.

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