Divergence Seems To Be The Theme Of The Week For Energy Prices
Divergence seems to be the theme of the week as energy prices are having a hard time finding direction as October trading winds down, and we’re seeing some markets struggling with excess supply, while others deal with shortages.
We’re seeing this play out in futures where yesterday HO and WTI contracts staged a strong recovery rally, and managed small gains on the day after free falling in the morning, only to fall back into the red today. RBOB was the only contract unable to recover into positive territory Thursday, but then rallied 3 cents overnight, only to give up those gains in the past hour. The low trades set in Thursday’s session offer a good short term support level that the bulls need to hold if they’re going to have a chance to regain the upward momentum lost early in the week.
We’re also seeing divergence in basis values as West Coast markets have seen strong rallies this week after multiple weather-related refinery hiccups last weekend, while Midwestern values are dropping to multi-year lows. Ordinarily, this type of price spread between regions would mean fleets of tanker trucks long hauling fuel to take advantage of (and eventually help close) the arbitrage window, but given the driver shortages, those options are limited and may keep these spreads wider for longer. On the other hand, Chicago basis values may find some indirect support after a fire was reported at the Cenovus (FKA Husky) refinery in Lima OH that injured 4 workers.
While gasoline prices have dropped more than 10 cents after reaching a 7 year high to start the week, ethanol prices continue to set new records north of $3/gallon as logistical bottlenecks continue to plague suppliers. Even though ethanol prices have had a strong week, RINs have come under heavy selling pressure once again as the industry continues to wait impatiently for the long-overdue ruling on RFS volumes.
It’s the last trading for November product futures, and when the December RBOB contracts takes the prompt position Monday, it will start out some 7 cents below where October goes off the board. We’ve already seen most cash markets adjust to this steep backwardation with big jumps in basis values when transitioning to the December futures reference, but this phenomenon will still cause confusion next week for those watching the prompt contract only and then wondering why their rack price didn’t drop.
Lots of earnings reports to sift through this week, and no surprise that with prices near 7 year highs, most producers are seeing their best earnings in several years. One surprise announcement alongside an earnings release was that World Fuels is buying Flyers Energy group for $773 million.
Click here to download a PDF of today's TACenergy Market Talk.
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Week 16 - US DOE Inventory Recap
Energy Markets Trading Quietly In The Red As Ethanol Prices Rally To Five-Month High
Energy markets are trading quietly in the red to start Wednesday’s session after a healthy bounce Tuesday afternoon suggested the Israel-Iran-linked liquidation had finally run its course.
There are reports of more Ukrainian strikes on Russian energy assets overnight, but the sources are sketchy so far, and the market doesn’t seem to be reacting as if this is legitimate news.
Ethanol prices have rallied to a 5-month high this week as corn and other grain prices have rallied after the latest crop progress update highlighted risks to farmers this year, lower grain export expectations from Ukraine, and the approval of E15 blends this summer despite the fact it pollutes more. The rally in grain and renewables prices has also helped RIN values find a bid after it looked like they were about to test their 4-year lows last week.
The API reported small changes in refined product inventories last week, with gasoline stocks down about 600,000, while distillates were up 724,000. Crude oil inventories increased by 3.2 million barrels according to the industry-group estimates. The DOE’s weekly report is due out at its normal time this morning.
Total reported another upset at its Port Arthur refinery that’s been a frequent flier on the TCEQ alerts since the January deep freeze knocked it offline and damaged multiple operating units. This latest upset seems minor as the un-named unit impacted was returned to normal operations in under an hour. Gulf Coast basis markets have shrugged off most reports of refinery upsets this year as the region remains well supplied, and it’s unlikely we’ll see any impact from this news.
California conversely reacted in a big way to reports of an upset at Chevron’s El Segundo refinery outside of LA, with CARBOB basis values jumping by more than a dime. Energy News Today continued to show its value by reporting the upset before the flaring notice was even reported to area regulators, proving once again it’s ahead of the curve on refinery-related events. Another industry news outlet meanwhile struggled just to remember where the country’s largest diesel seller is located.
Click here to download a PDF of today's TACenergy Market Talk
The Struggle For Renewable Producers Continues As A Rapid Influx Of Supply And Crashing Credit Prices Make Biodiesel
The sigh of relief selloff continues in energy markets Tuesday morning, with gasoline prices now down more than 20 cents in 7 sessions, while diesel prices have dropped 26 cents in the past 12. Crude oil prices are within a few pennies of reaching a 1 month low as a lack of headlines from the world’s hot spots allows some reflection into the state of the world’s spare capacity for both oil and refined products.
Gasoline prices are trading near a 6-week low this morning, but still need to fall about another nickel in order to break the weekly trendline that pushed prices steadily higher since December. If that trend breaks, it will be safer to say that we saw the end of the spring gasoline rally on April 12th for the 2nd year in a row. Last year RBOB futures peaked on April 12 at $2.8943 and bottomed out on May 4th at $2.2500. The high (at this point) for this year was set on April 12th at $2.8516, and the low overnight was $2.6454.
It’s not just energy commodities that are seeing an unwind of the “flight to safety” trade: Gold prices had their biggest selloff in 2 years Monday and continue to point lower today. Just how much money poured into commodities in the weeks leading up to the direct confrontation between Israel and Iran is unclear, but we have seen in year’s past that these unwind-events can create a snowball effect as traders can be forced to sell to cover their margin calls.
Supply > Demand: The EIA this morning highlighted the record setting demand for natural gas in the US last year, which was not nearly enough to offset the glut of supply that forced prices to a record low in February. A shortage of natural gas in Europe was a key driver of the chaotic markets that smashed just about every record in 2022, and an excess of natural gas supply in Europe and the US this year is acting as a buffer, particularly on diesel prices.
The struggle for renewable producers continues as a rapid influx of supply and crashing credit prices make Biodiesel, RD and SAF unprofitable for many. In addition to the plant closures announced in the past 6 months, Vertex Energy reported Monday it’s operating its Renewable Diesel facility in Mobile AL at just 50% of capacity in Q1. The truly scary part for many is that the $1/gallon Blender's tax credit ends this year and is being replaced by the “Clean” Fuel production credit that forces producers to prove their emissions reductions in order to qualify for an increased subsidy. It’s impossible to say at this point how much the net reduction will be for domestic producers, but importers will get nothing, and at current CI values, many biodiesel producers may see their “blend credit” cut by more than half.
Click here to download a PDF of today's TACenergy Market Talk.