Diesel Prices Continue To Try And Lead The Energy Complex Higher This Week

Market TalkTuesday, Oct 18 2022
Pivotal Week For Price Action

Diesel prices continue to try and lead the energy complex higher this week, as the world continues to have few answers to a shortage of natural gas and distillates, while gasoline and crude oil prices are resisting that pull and moving modestly lower. 

Equity markets are pointing to large gains to start the day, setting new highs for the recovery rally since bottoming out last Thursday, but still not breaking the longer term downward trend. The correlation between daily swings in US stock indices and energy contracts has fallen apart in the past couple of weeks, so the rally seems to be having little if any impact on fuel prices so far. 

Basis markets around the country remain chaotic as traders deal with supply that swings between famine and feast on a weekly basis, and big swings in calendar spreads on futures that raise the level of difficulty substantially.  California continues to be the diva of the cash markets, with LA CARBOB now trading negative, marking a $2.50 drop so far in October. No word yet if regulators will investigate the cause of this price drop. West Coast diesel values meanwhile continue to trade at big negative values ahead of the roll to November physical trading which moves prices to the December futures contract reference point which is nearly 42 cents cheaper.  

NY Harbor ULSD continues to disconnect from the rest of the country, with prompt values going for nearly 80 cents more than the neighboring USGC and Chicago markets and more than $1/gallon above those on the West Coast. Delta’s refinery in Monroe PA is reportedly restarting after planned maintenance which should help alleviate the latest short squeeze on East Coast distillates, and those high prices are certainly opening arbitrage windows from several markets around the world, so we will see another price collapse at some point, but it’s hard to say when, or how long this latest dip will last.

New reports are out this morning that the White House will announce more releases from the SPR, with an estimate of 10-15 million barrels, which won’t last long at the current pace of around 1 million barrels/day. That release, if true, would be less than 8 percent of the total already announced for the year, although with nearly half of the reserve already depleted, the strength of this lever to [NOT win elections] combat price increases is decreasing. The same reports also suggest that a decision on limiting fuel exports will wait until after the elections. It’s worth noting the White House already ruled out a ban on natural gas exports, due to its numerous pledges to come to Europe’s aid, so it’s hard to see a ban on distillates, although restrictions on certain types of fuel (like gasoline) or limiting the destination countries could still be in play to try and show they’re trying to combat high gasoline prices without limiting refiners ability to run full out. 

Meanwhile, the simplest solution to some of the domestic supply bottlenecks, a widespread waiver on the Jones Act, remains a political non-starter although a waiver for LNG shipments to Puerto Rico was just approved to aid in Hurricane recovery efforts.    

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Market Talk Update 10.18.2022

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Market TalkFriday, May 17 2024

The Recovery Rally In Energy Markets Continues For A 3rd Day

The recovery rally in energy markets continues for a 3rd day with refined product futures both up more than a dime off of the multi-month lows we saw Wednesday morning. The DJIA broke 40,000 for the first time ever Thursday, and while it pulled back yesterday, US equity futures are suggesting the market will open north of that mark this morning, adding to the sends of optimism in the market.

Despite the bounce in the back half of the week, the weekly charts for both RBOB and ULSD are still painting a bearish outlook with a lower high and lower low set this week unless the early rally this morning can pick up steam in the afternoon. It does seem like the cycle of liquidation from hedge funds has ended however, so it would appear to be less likely that we’ll see another test of technical support near term after this bounce.

Ukraine hit another Russian refinery with a drone strike overnight, sparking a fire at Rosneft’s 240mb/day Tuapse facility on the black sea. That plant was one of the first to be struck by Ukrainian drones back in January and had just completed repairs from that strike in April. The attack was just one part of the largest drone attack to date on Russian energy infrastructure overnight, with more than 100 drones targeting power plants, fuel terminals and two different ports on the Black Sea. I guess that means Ukraine continues to politely ignore the White House request to stop blowing up energy infrastructure in Russia.

Elsewhere in the world where lots of things are being blown up: Several reports of a drone attack in Israel’s largest refining complex (just under 200kbd) made the rounds Thursday, although it remains unclear how much of that is propaganda by the attackers and if any impact was made on production.

The LA market had 2 different refinery upsets Thursday. Marathon reported an upset at the Carson section of its Los Angeles refinery in the morning (the Carson facility was combined with the Wilmington refinery in 2019 and now reports as a single unit to the state, but separately to the AQMD) and Chevron noted a “planned” flaring event Thursday afternoon. Diesel basis values in the region jumped 6 cents during the day. Chicago diesel basis also staged a recovery rally after differentials dropped past a 30 cent discount to futures earlier in the week, pushing wholesale values briefly below $2.10/gallon.

So far there haven’t been any reports of refinery disruptions from the severe weather than swept across the Houston area Thursday. Valero did report a weather-related upset at its Mckee refinery in the TX panhandle, although it appears they avoided having to take any units offline due to that event.

The Panama Canal Authority announced it was increasing its daily ship transit level to 31 from 24 as water levels in the region have recovered following more than a year of restrictions. That’s still lower than the 39 ships/day rate at the peak in 2021, but far better than the low of 18 ships per day that choked transit last year.

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

Pivotal Week For Price Action
Market TalkThursday, May 16 2024

Energy Prices Found A Temporary Floor After Hitting New Multi-Month Lows Wednesday

Energy prices found a temporary floor after hitting new multi-month lows Wednesday morning as a rally to record highs in US equity markets and a modestly bullish DOE report both seemed to encourage buyers to step back into the ring.

RBOB and ULSD futures both bounced more than 6 cents off of their morning lows, following a CPI report that eased inflation fears and boosted hopes for the stock market’s obsession of the FED cutting interest rates. Even though the correlation between energy prices and equities and currencies has been weak lately, the spillover effect on the bidding was clear from the timing of the moves Wednesday.

The DOE’s weekly report seemed to add to the optimism seen in equity markets as healthy increases in the government’s demand estimates kept product inventories from building despite increased refinery runs.

PADD 3 diesel stocks dropped after large increases in each of the past 3 weeks pushed inventories from the low end of their seasonal range to average levels. PADD 2 inventories remain well above average which helps explain the slump in mid-continent basis values over the past week. Diesel demand showed a nice recovery on the week and would actually be above the 5 year average if the 5% or so of US consumption that’s transitioned to RD was included in these figures.

Gasoline inventories are following typical seasonal patterns except on the West Coast where a surge in imports helped inventories recover for a 3rd straight week following April’s big basis rally.

Refiners for the most part are also following the seasonal script, ramping up output as we approach the peak driving demand season which unofficially kicks off in 10 days. PADD 2 refiners didn’t seem to be learning any lessons from last year’s basis collapse and rapidly increased run rates last week, which is another contributor to the weakness in midwestern cash markets. One difference this year for PADD 2 refiners is the new Transmountain pipeline system has eroded some of their buying advantage for Canadian crude grades, although those spreads so far haven’t shrunk as much as some had feared.

Meanwhile, wildfires are threatening Canada’s largest oil sands hub Ft. McMurray Alberta, and more than 6,000 people have been forced to evacuate the area. So far no production disruptions have been reported, but you may recall that fires in this region shut in more than 1 million barrels/day of production in 2016, which helped oil prices recover from their slump below $30/barrel.

California’s Air Resources Board announced it was indefinitely delaying its latest California Carbon Allowance (CCA) auction – in the middle of the auction - due to technical difficulties, with no word yet from the agency when bidders’ security payments will be returned, which is pretty much a nice microcosm for the entire Cap & Trade program those credits enable.

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