Diverging Price Moves Have Been The Major Trading Theme Of The Past 24 Hours/ West Coast Differentials Are Spiking

Market TalkFriday, Aug 18 2023
Pivotal Week For Price Action

Diverging price moves have been the major trading theme of the past 24 hours with ULSD futures bouncing 13 cents off of Thursday’s lows, while RBOB futures have dropped 11 cents from their Thursday high.  At the time of this writing, ULSD prices were just ½ cent below where they ended last Friday, and if they can settle above $3.1215 today, they’ll mark an 8th straight week of gains. WTI meanwhile is more than $3/barrel below its settlement level from last week, making it highly unlikely that the streak will continue for crude oil. 

Within the gasoline space we’re also seeing wildly diverging cash prices, with Midwestern differentials continuing to slide, adding to the big drop in futures, while West Coast basis differentials are spiking to premiums 60 cents above September Futures as refinery upsets are causing a short squeeze on summer-grade fuels.  

There’s a strong chance we will continue to see differentials continue to spike next week as the West Coast rolls to September delivery cycles pricing against the October futures contract which pegs summer-rvp physical products vs the winter-grade futures that 20+ cents cheaper than current values. This run-up in basis values marks the first real test for California’s new commission to oversee market behavior that has forced refiners and marketers to report their trading activity daily starting in July. Given the price action so far, the new committee touted to stop price gouging doesn’t seem to be having the intended effect. 

Ethanol prices have dropped to an 18 month low this week on the back of weaker corn prices, that are trading at their lowest levels since the fall of 2020. The US announced Thursday it was seeking a dispute settlement panel under the North American trade act to stop Mexico from blocking genetically modified corn imports. If arbitrators' rule in favor of the US, it doesn’t necessarily mean more corn exports will flow south of the border, but it will give the US the ability to impose punitive tariffs on Mexican goods, which doesn’t sound like something that will help reduce inflation.

The Weather Channel is going to see ratings increase from the energy over the coming week. Hurricane Hilary rapidly intensified to a category 4 storm overnight with 140mph winds as it approached the Baha peninsula.  If Hilary ends up making landfall in California, it would be the first tropical storm to land in the state in 84 years. To get a feel for how widespread the impacts of this storm could be, note that flash flood watches from this system extend across 11 states all the way from California and neighboring states to Montana, North Dakota and even Western Minnesota.

Meanwhile, the NHC is now tracking 4 possible storm systems in the Atlantic, with one of those systems now given 70% odds of being named next week. The good news is the two systems on the western end that look like they could get into the Gulf of Mexico and become an immediate threat to oil production and refining are both still given just 30% odds of developing into a tropical storm or Hurricane. The 2 storms further east both have higher odds, but also look like they’ll continue moving just enough north to keep them out to sea, although there is still a small chance at an East Coast strike from one of these systems. 

The Marathon Refinery in Texas City had yet another upset Wednesday night, reporting multiple units were knocked offline due to a loss of steam from a 3rd party provider.

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

Market Talk Update 08.18.2023

News & Views

View All
Pivotal Week For Price Action
Market TalkFriday, Apr 19 2024

Gasoline Futures Are Leading The Way Lower This Morning

It was a volatile night for markets around the world as Israel reportedly launched a direct strike against Iran. Many global markets, from equities to currencies to commodities saw big swings as traders initially braced for the worst, then reversed course rapidly once Iran indicated that it was not planning to retaliate. Refined products spiked following the initial reports, with ULSD futures up 11 cents and RBOB up 7 at their highest, only to reverse to losses this morning. Equities saw similar moves in reverse overnight as a flight to safety trade soon gave way to a sigh of relief recovery.

Gasoline futures are leading the way lower this morning, adding to the argument that we may have seen the spring peak in prices a week ago, unless some actual disruption pops up in the coming weeks. The longer term up-trend is still intact and sets a near-term target to the downside roughly 9 cents below current values. ULSD meanwhile is just a nickel away from setting new lows for the year, which would open up a technical trap door for prices to slide another 30 cents as we move towards summer.

A Reuters report this morning suggests that the EPA is ready to announce another temporary waiver of smog-prevention rules that will allow E15 sales this summer as political winds continue to prove stronger than any legitimate environmental agenda. RIN prices had stabilized around 45 cents/RIN for D4 and D6 credits this week and are already trading a penny lower following this report.

Delek’s Big Spring refinery reported maintenance on an FCC unit that would require 3 days of work. That facility, along with several others across TX, have had numerous issues ever since the deep freeze events in 2021 and 2024 did widespread damage. Meanwhile, overnight storms across the Midwest caused at least one terminal to be knocked offline in the St. Louis area, but so far no refinery upsets have been reported.

Meanwhile, in Russia: Refiners are apparently installing anti-drone nets to protect their facilities since apparently their sling shots stopped working.

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

Pivotal Week For Price Action
Market TalkThursday, Apr 18 2024

The Sell-Off Continues In Energy Markets, RBOB Gasoline Futures Are Now Down Nearly 13 Cents In The Past Two Days

The sell-off continues in energy markets. RBOB gasoline futures are now down nearly 13 cents in the past two days, and have fallen 16 cents from a week ago, leading to questions about whether or not we’ve seen the seasonal peak in gasoline prices. ULSD futures are also coming under heavy selling pressure, dropping 15 cents so far this week and are trading at their lowest level since January 3rd.

The drop on the weekly chart certainly takes away the upside momentum for gasoline that still favored a run at the $3 mark just a few days ago, but the longer term up-trend that helped propel a 90-cent increase since mid-December is still intact as long as prices stay above the $2.60 mark for the next week. If diesel prices break below $2.50 there’s a strong possibility that we see another 30 cent price drop in the next couple of weeks.

An unwind of long positions after Iran’s attack on Israel was swatted out of the sky without further escalation (so far anyway) and reports that Russia is resuming refinery runs, both seeming to be contributing factors to the sharp pullback in prices.

Along with the uncertainty about where the next attacks may or may not occur, and if they will have any meaningful impact on supply, come no shortage of rumors about potential SPR releases or how OPEC might respond to the crisis. The only thing that’s certain at this point, is that there’s much more spare capacity for both oil production and refining now than there was 2 years ago, which seems to be helping keep a lid on prices despite so much tension.

In addition, for those that remember the chaos in oil markets 50 years ago sparked by similar events in and around Israel, read this note from the NY Times on why things are different this time around.

The DOE’s weekly status report was largely ignored in the midst of the big sell-off Wednesday, with few noteworthy items in the report.

Diesel demand did see a strong recovery from last week’s throwaway figure that proves the vulnerability of the weekly estimates, particularly the week after a holiday, but that did nothing to slow the sell-off in ULSD futures.

Perhaps the biggest next of the week was that the agency made its seasonal changes to nameplate refining capacity as facilities emerged from their spring maintenance.

PADD 2 saw an increase of 36mb/day, and PADD 3 increased by 72mb/day, both of which set new records for regional capacity. PADD 5 meanwhile continued its slow-motion decline, losing another 30mb/day of capacity as California’s war of attrition against the industry continues. It’s worth noting that given the glacial pace of EIA reporting on the topic, we’re unlikely to see the impact of Rodeo’s conversion in the official numbers until next year.

Speaking of which, if you believe the PADD 5 diesel chart below that suggests the region is running out of the fuel, when in fact there’s an excess in most local markets, you haven’t been paying attention. Gasoline inventories on the West Coast however do appear consistent with reality as less refining output and a lack of resupply options both continue to create headaches for suppliers.

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