Diesel Futures Are Trying To Lead The Energy Complex Higher To Start The Week

Market TalkMonday, Dec 12 2022
Pivotal Week For Price Action

Diesel futures are trying to lead the energy complex higher to start the week, while gasoline prices are dragging modestly lower after touching new lows for the year overnight. 

After 6 straight weeks of selling that have knocked more than $1.90/gallon out of prompt futures prices, ULSD contracts are finding a bid this morning as a major winter storm sweeps the country, and offers another reminder that the world is still short on heating supplies. This storm could prove to be an ultimately bearish factor for many parts of the country however as fewer and fewer people still heat their homes with distillates, and many vehicles may be forced to stay off the roads this week. This week’s action could prove pivotal technically for ULSD, as a layer of chart support around $2.76 that formed last week could be the springboard for the next big rally, or could lead to a slide towards $2.20 in the next 2-3 months if it breaks.  

The big drop in refined product prices over the past 6 weeks has pushed crack spreads to their lowest levels since January, and may encourage some refiners to cut back on the unusually strong run rates we’ve seen over the past few weeks. 

RBOB gasoline futures touched a new low for the year overnight at $2.02, marking a $1/gallon drop from their October highs. Unlike heating oil, gasoline contracts don’t have the benefit of any seasonal factors with less than 2 weeks left before Christmas, and the big plunge in demand that follows.

Crude oil prices continue to shrug off the Keystone pipeline spill news, as that appears to have been contained, and other delivery options appear to be able to spread the load short term. 

Money managers saw a big decline in their net length held in refined product contracts last week with ULSD, Gasoil and RBOB contracts all seeing notable liquidations of long positions and distillates also seeing new shorts being added. Crude oil contracts were mixed on the week, with WTI seeing a modest increase in speculative length, while Brent saw a small decline. The sigh of relief over European energy supplies can be seen in the Brent and Gasoil figures which are both seeing 2/3 less bets on higher prices now than they were this time last year, while the general lack of speculative enthusiasm for energy contracts despite historically low supplies is seen as another sign of the looming economic recession

Open interest in Brent and ULSD contracts fell to a fresh 6+ year low last week as the combination of volatility and increased margin requirements, which are exacerbated by higher interest rates, continues to keep some traders on the sidelines. 

Baker Hughes reported a decline of 2 oil rigs, and 2 natural gas rigs drilling in the US last week as the industry continues to show restraint in its attempts to raise output. The relative lack of drilling investment was called “Un-American” by a White House appointee over the weekend, in the  same interview the advisor highlighted the goal of shrinking energy demand.

The IEA released a report last week highlighting how energy security concerns have accelerated investment in renewable energy options, with the next 5 years expected to witness as much new renewable electricity brought online as we’ve seen over the past 20 years. Meanwhile, a major breakthrough in fusion energy technology will be announced this week as a big step towards clean energy alternatives, even though the technology is likely many years away from widespread commercial use.

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Market Talk Update 12.12.2022

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Market TalkFriday, Mar 1 2024

Oil Futures Are Leading The Energy Complex In A Modest Rally To Begin March Trading

Oil futures are leading the energy complex in a modest rally to begin March trading, with WTI and Brent both up around $1.50/barrel, while refined products are adding around 2 cents in the early going.

RBOB gasoline futures rolled to a summer-grade RVP with the April contract in prompt position this morning. West Coast cash markets are already converted to summer grades, so they’re holding their premiums to futures, while the markets east of the Rockies are now trading at substantial discounts to futures as they move through their remaining winter-cycles over the next 4-6 weeks. The high trade for the April RBOB contract last month was just north of $2.63, which sets the first layer of resistance to a March madness gasoline rally just about 3 cents north of current values.

While gasoline looks somewhat bullish on the charts, and has seasonal factors working in its favor, diesel prices look weak in comparison with prices reaching a 6-week low Thursday before finally finding a bid, and the roll to April futures cut out 3 cents from prompt values. Diesel prices also don’t enjoy the seasonal benefits of gasoline, with a winter-that-wasn’t offering no help for supplemental diesel demand to replace natural gas in the US or Europe.

Speaking of winter weather, the West Coast continues to get the worst of it in 2024, with a casual 10 feet of snow with 100+ mile an hour wind gusts hitting the Sierra Nevada range. While the worst of that winter storm is happening far from the coast, the San Francisco bay area is under a gale warning starting this afternoon.

The wildfires in the Texas panhandle are now the largest in state history, impacting more than 1 million acres of land. The P66 Borger refinery is caught between the blazes, but so far has not reported any operational issues or plans to change operations at the facility. Valero’s McKee refinery is located just 50 miles from Borger, but looks to be far enough north and West to not be threatened by the fires, for now at least.

Mass Exxodus? A Reuters report noted that Exxon had notified its traders that it was cutting their salaries, in another sign that the major’s move back into trading wasn’t going so well. Exxon’s Exodus has already been a bit of a joke for the past few years, and now that the traders are being targeted, don’t be surprised if the cube photos are taken to a new level.

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

Pivotal Week For Price Action
Market TalkThursday, Feb 29 2024

It's Another Mixed Start For Energy Futures This Morning After Refined Products Saw Some Heavy Selling Wednesday

It's another mixed start for energy futures this morning after refined products saw some heavy selling Wednesday. Both gasoline and diesel prices dropped 7.5-8.5 cents yesterday despite a rather mundane inventory report. The larger-than-expected build in crude oil inventories (+4.2 million barrels) was the only headline value of note, netting WTI futures a paltry 6-cent per barrel gain on the day.

The energy markets seem to be holding their breath for this morning’s release of the Personal Consumption Expenditures (PCE) data from the Bureau of Economic Analysis (BEA). The price index is the Fed’s preferred inflation monitor and has the potential to impact how the central bank moves forward with interest rates.

Nationwide refinery runs are still below their 5-year average with utilization across all PADDs well below 90%. While PADD 3 production crossed its 5-year average, it’s important to note that measure includes the “Snovid” shutdown of 2021 and throughput is still below the previous two years with utilization at 81%.

We will have to wait until next week to see if the FCC and SRU shutdowns at Flint Hills’ Corpus Christi refinery will have a material impact on the regions refining totals. Detail on the filing can be found on the Texas Commission on Environmental Quality website.

Update: the PCE data shows a decrease in US inflation to 2.4%, increasing the likelihood of a rate cut later this year. Energy futures continue drifting, unfazed.

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