Diesel Futures Are Trying To Lead Another Move Higher To Start The Week With The October ULSD Contract Up A Nickel So Far

Market TalkMonday, Sep 11 2023
Pivotal Week For Price Action

Diesel futures are trying to lead another move higher to start the week with the October ULSD contract up a nickel so far, reaching a new 8-month high at $3.3510. RBOB futures are ticking slightly higher on the day, but remain well below their Friday morning highs, while WTI is still trading modestly lower.

Hurricane Lee will be a big story all week as it slowly crawls towards the East Coast. Most models keep this storm off the coast as it moves north this week, although a landfall from New Jersey to Maine is still possible this coming weekend so it will remain front page news.  The odds of a strike on northeastern Maine look to have increased over the weekend, as have the chances that the Irving refinery in St. John NB will take a direct hit. If there’s a silver lining to the potential for that refinery to being hit by a major storm, it would be that the facility already had a turnaround planned starting this week, so the market isn’t planning on those barrels anyway. 

Money managers were piling into WTI contracts as prices hit their highest levels of the year last week, jumping on the bullish bandwagon with bets that the rally will continue and pushing net length to the highest since June 2022. The large speculators also added to their length in Brent crude, but reduced their length in products, with ULSD, RBOB and Gasoil contracts all seeing slight declines on the week. Swap dealers saw an active week with a healthy increase in net short positions in WTI, which suggests that some producers are jumping in to hedge future output at current values.

Baker Hughes reported an increase of 1 oil rig drilling in the US last week, the first weekly increase since June after reaching the lowest level since February 2022 the week prior.   Natural gas rigs declined by 1 on the week, setting a new 20 month low.

That didn’t last long: The Group 3 market’s turn in the spotlight with a trade north of $1/gallon over RBOB futures for prompt UNL lasted less than a day with values dropping sharply Friday to “only” about 40 cents over futures. West Coast markets meanwhile continue to carry hefty premiums as tight inventories remain a theme as we approach the last few weeks of summer-grade products for gasoline, and diesel stocks remain tight with resupply of RD looking scarce due to weather-related delays in the Panama Canal.

An explosion at the ADM Ethanol plant in Decatur Illinois sent several workers to the hospital overnight. That facility is listed as the largest ethanol production plant in the country at 375 million gallons/year (24mb/day) and accounts for more than 2% of total US ethanol production capacity according to the EIA’s energy atlas. It’s unclear at this point what if any impact there is on production, but reports suggest it’s the third fire in the past 6 months at the facility, and the others have not created a big stir in ethanol markets. 

Marathon’s Texas City (aka Galveston Bay) refinery had another fire last week, with reports suggesting this latest in an unfortunate string of upsets at the country’s 4th largest plant will keep an FCC unit offline for at least a week. The event was downplayed in a filing with the TCEQ Friday that only mentioned 2 hours of unplanned flaring. That story was given credit for some of the early buying in product futures Friday, but gasoline prices quickly gave back gains, suggesting the FCC downtime wasn’t seen as much of a factor longer term.

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Market Talk Update 09.11.2023

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Pivotal Week For Price Action
Market TalkFriday, Sep 29 2023

The Energy Bulls Are On The Run This Morning, Lead By Heating And Crude Oil Futures

The energy bulls are on the run this morning, lead by heating and crude oil futures. The November HO contract is trading ~7.5 cents per gallon (2.3%) higher while WTI is bumped $1.24 per barrel (1.3%) so far in pre-market trading. Their gasoline counterpart is rallying in sympathy with .3% gains to start the day.

The October contracts for both RBOB and HO expire today, and while trading action looks to be pretty tame so far, it isn’t a rare occurrence to see some big price swings on expiring contracts as traders look to close their positions. It should be noted that the only physical market pricing still pricing their product off of October futures, while the rest of the nation already switched to the November contract over the last week or so.

We’ve now got two named storms in the Atlantic, Philippe and Rina, but both aren’t expected to develop into major storms. While most models show both storms staying out to sea, the European model for weather forecasting shows there is a possibility that Philippe gets close enough to the Northeast to bring rain to the area, but not much else.

The term “$100 oil” is starting to pop up in headlines more and more mostly because WTI settled above the $90 level back on Tuesday, but partially because it’s a nice round number that’s easy to yell in debates or hear about from your father-in-law on the golf course. While the prospect of sustained high energy prices could be harmful to the economy, its important to note that the current short supply environment is voluntary. The spigot could be turned back on at any point, which could topple oil prices in short order.

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Pivotal Week For Price Action
Market TalkThursday, Sep 28 2023

Gasoline And Crude Oil Futures Are All Trading Between .5% And .8% Lower To Start The Day

The energy complex is sagging this morning with the exception of the distillate benchmark as the prompt month trading higher by about a penny. Gasoline and crude oil futures are all trading between .5% and .8% lower to start the day, pulling back after WTI traded above $95 briefly in the overnight session.

There isn’t much in the way of news this morning with most still citing the expectation for tight global supply, inflation and interest rates, and production cuts by OPEC+.

As reported by the Department of Energy yesterday, refinery runs dropped in all PADDs, except for PADD 3, as we plug along into the fall turnaround season. Crude oil inventories drew down last week, despite lower runs and exports, and increased imports, likely due to the crude oil “adjustment” the EIA uses to reconcile any missing barrels from their calculated estimates.

Diesel remains tight in the US, particularly in PADD 5 (West Coast + Nevada, Arizona) but stockpiles are climbing back towards their 5-year seasonal range. It unsurprising to see a spike in ULSD imports to the region since both Los Angeles and San Francisco spot markets are trading at 50+ cent premiums to the NYMEX. We’ve yet to see such relief on the gasoline side of the barrel, and we likely won’t until the market switches to a higher RVP.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.

Pivotal Week For Price Action