Diesel Prices Are Struggling To Find A Floor After A Huge Friday Selloff Knocked The Wind Out Of Its December Recovery Rally

Market TalkMonday, Dec 19 2022
Pivotal Week For Price Action

Diesel prices are struggling to find a floor after a huge Friday selloff knocked the wind out of its December recovery rally. ULSD was up 5 cents overnight but has dropped to 2 cent losses in the early going, despite RBOB and WTI holding onto modest gains.

Another round of winter storms this week could negatively impact Christmas travelers, but - so far at least - aren’t stirring fears of spiking demand for heating supplies. While most of the headaches will come in the North and Eastern US, Texas is forecast to see single digit temperatures for the first time since the 2021 storm that crippled the region and knocked every refinery in the state offline for some period of time.

Money managers continue to be unenthusiastic about energy contracts, making large reductions in their net length (bets on higher prices) for ULSD, RBOB and Brent last week, while WTI and Gasoil contracts saw small increases. Open interest did increase on the week, but remains near 6 year lows as volatility and increased margin costs keep many on the sidelines. Speaking of which, take a look at the “Swap Dealer” positions for WTI in the chart below. Those positions have been shrinking steadily since January and reached their smallest level since July of 2017 last week, which suggests that domestic oil producers are hedging less and less of their future output. 

Baker Hughes reported the US oil rig count dropped by 5 last week, a 2nd straight decline in drilling activity, and perhaps yet another sign of the risk aversion by producers these days. 

The DOE announced the White House was taking credit for lowering gasoline prices Friday, as it issued a press release for a new purchase of 3 million barrels for the SPR, which amounts to just a little over 1% of the oil that’s been drawn down over the past 2 years. Whether or not this is just political theatre remains to be seen as details of the February auction have yet to be released.

As year-end approaches, we’re seeing rack prices in Texas plummet vs their spot markets as inventory holders try to minimize the impact of the state’s property tax laws that will cost 8-10 cents/gallon for anything sitting in a terminal. This annual phenomenon typically leads to some big drawdowns in oil inventories as importers will hold barrels off-shore until January to avoid paying that extra tax. The collapse of the spot/rack spreads is particularly notable in the West Texas markets, which have made their seasonal swing from famine to feast on supply along with several other major markets across the Southwest.

Corruption allegations against European and Qatari officials have taken some of the shine off of an epic World Cup finale, and Qatar is now the latest country to rattle the energy saber suggesting that the investigation could “negatively affect” security discussions, while stopping short of explicitly threatening natural gas supplies that are currently being negotiated. 

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

Market Talk Update 12.19.22

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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.

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

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