Don't Fall For The Head-Fake

Market TalkThursday, Mar 21 2019
Spring Breakout Rally Recovering From Hangover

Once again energy futures are starting the day on a softer note, after reaching new highs for the year in the past 24 hours. A stronger dollar and a weak start for US stock markets are both getting credit for the early move lower. Even with the early sell-off, it’s shaping up a third consecutive strong week for the energy prices, as the spring break rally continues with gasoline embracing its traditional role leading the rest of the complex higher early in the year.

Don’t fall for the head-fake: RBOB gasoline futures are trading lower again this morning, after reaching a fresh high for the year overnight. In each of the past 5 trading days gasoline futures have dropped, only to recover and settle higher by the end of the day. The rash of refinery issues from the East Coast to the West continue to push basis values well above year-ago levels, adding to the strength in futures, with several cash markets now trading 60 cents higher than they were less than 2 months ago.

Speaking of refinery issues: A Bloomberg article proves once again how the old networks that traders have relied on for years for refinery information are obsolete as now you can just track workers phones to know when there’s an issue.

The impact of Midwestern flooding continues to grow as more than 10% of US ethanol production is offline, and rail traffic has been hamstrung as roads and lines were washed out across the region. Estimates are the disruptions will last at least another few weeks, with most issues reported in the SW US due to limitations on alternate supplies or transportation routes.

Here’s the head scratcher of the week. While oil and gasoline prices are reaching multi-month highs, diesel prices are dropping. This is despite ULSD having the strongest fundamental argument of all the petroleum contracts with inventories below average levels, demand running strong and a game-changing spec change looming at year end.

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Pivotal Week For Price Action
Market TalkThursday, Feb 29 2024

It's Another Mixed Start For Energy Futures This Morning After Refined Products Saw Some Heavy Selling Wednesday

It's another mixed start for energy futures this morning after refined products saw some heavy selling Wednesday. Both gasoline and diesel prices dropped 7.5-8.5 cents yesterday despite a rather mundane inventory report. The larger-than-expected build in crude oil inventories (+4.2 million barrels) was the only headline value of note, netting WTI futures a paltry 6-cent per barrel gain on the day.

The energy markets seem to be holding their breath for this morning’s release of the Personal Consumption Expenditures (PCE) data from the Bureau of Economic Analysis (BEA). The price index is the Fed’s preferred inflation monitor and has the potential to impact how the central bank moves forward with interest rates.

Nationwide refinery runs are still below their 5-year average with utilization across all PADDs well below 90%. While PADD 3 production crossed its 5-year average, it’s important to note that measure includes the “Snovid” shutdown of 2021 and throughput is still below the previous two years with utilization at 81%.

We will have to wait until next week to see if the FCC and SRU shutdowns at Flint Hills’ Corpus Christi refinery will have a material impact on the regions refining totals. Detail on the filing can be found on the Texas Commission on Environmental Quality website.

Update: the PCE data shows a decrease in US inflation to 2.4%, increasing the likelihood of a rate cut later this year. Energy futures continue drifting, unfazed.

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
Pivotal Week For Price Action
Market TalkWednesday, Feb 28 2024

It’s Red Across The Board For Energy Prices So Far This Morning With The ‘Big Three’ Contracts All Trading Lower To Start The Day

It’s red across the board for energy prices so far this morning with the ‘big three’ contracts (RBOB, HO, WTI) all trading lower to start the day. Headlines are pointing to the rise in crude oil inventories as the reason for this morning’s pullback, but refined product futures are leading the way lower, each trading down 1% so far, while the crude oil benchmark is only down around .3%.

The American Petroleum Institute published their national inventory figures yesterday afternoon, estimating an 8+ million-barrel build in crude oil inventory across the country. Gasoline and diesel stocks are estimated to have dropped by 3.2 and .5 million barrels last week, respectively. The official report from the Department of Energy is due out at its regular time this morning (9:30 CST).

OPEC’n’friends are rumored to be considering extending their voluntary production cuts into Q2 of this year in an effort to buoy market prices. These output reductions, reaching back to late 2022, are aimed at paring back global supply by about 2.2 million barrels per day and maintaining a price floor. On the flip side, knowledge of the suspended-yet-available production capacity and record US output is keeping a lid on prices.

How long can they keep it up? While the cartel’s de facto leader (Saudi Arabia) may be financially robust enough to sustain itself through reduced output indefinitely, that isn’t the case for other member countries. Late last year Angola announced it will be leaving OPEC, freeing itself to produce and market its oil as it wishes. This marks the fourth membership suspension over the past decade (Indonesia 2016, Qatar 2019, Ecuador 2020).

The spot price for Henry Hub natural gas hit a record low, exchanging hands for an average of $1.50 per MMBtu yesterday. A rise in production over the course of 2023 and above average temperatures this winter have pressured the benchmark to a price not seen in its 27-year history, much to Russia’s chagrin.

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