Diesel Futures Try To Lead The Energy Complex Higher

Market TalkMonday, Apr 12 2021
Pivotal Week For Price Action

Diesel futures are trying to lead the energy complex higher to start the week, testing the upper end of their sideways trading range, after chart support held up to several attempted sell-offs last week. There’s little in the way of news to drive the action so far, and it seems that we’re still stuck in the back and forth pattern until the range breaks.  

While gasoline and diesel prices continue to move sideways, ethanol prices are holding at multi-year highs north of $2/gallon in most U.S. markets, thanks to elevated corn prices and RIN Values holding near all-time highs. Several ethanol producers that shut down operations when prices were in the $.70-$.80 cent range this time last year are coming back online to take advantage of these lofty prices, which will only increase pressure on feedstock producers to supply the parade of new renewable diesel projects racing to take advantage of the subsidies provided to turn food into fuel.

Baker Hughes reported no change in the total U.S. count of active oil rigs last week. The Eagle Ford basin in TX did increase its count by one rig, while the “other” category made up of smaller basins declined by one. A Rystad energy report released Friday suggested that fracking activities across the U.S. are approaching pre-pandemic levels, and that output should continue to increase in the second quarter, which is not surprising given current prices. What is more surprising is that flaring from those wells is down substantially as producers are beginning to catch up with the infrastructure needed to deal with the excess natural gas produced in those operations. 

Money managers continue to display mixed feelings for energy contracts, which isn’t too hard to understand given the yo-yo price action we’ve seen in recent weeks. The large speculative category of trader decreased their net long position in WTI, Brent and Gasoil last week by relatively small amounts, but added to their bets on higher priced for RBOB and ULSD. 

Houthi rebels launched more attacks on Saud Arabia overnight, this time targeting an area with several refineries. It’s not immediately clear what if any damage was done to those facilities, but given the limited impact of several recent attacks, the market does not appear too concerned.

Today’s interesting read: Why closing a nuclear power plant in New York will increase natural gas consumption, and may cause more diesel demand spikes when electricity demand peaks.

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

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Pivotal Week For Price Action
Pivotal Week For Price Action
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.