Energy And Equity Markets Are Both Seeing Losses To Start The Week

Market TalkMonday, Sep 19 2022
Pivotal Week For Price Action

Energy and equity markets are both seeing losses to start the week as fears of a global economic slowdown seem to be weighing heavily on markets around the world. Refined products are trading near multi-month lows, and threatening a technical breakdown that could see another big price slide unless buyers step in soon.  

The US dollar is rallying this morning, approaching the 20-year high it set earlier in the month ahead of several central bank meetings this week, which is putting downward pressure on several commodities. According to the CME’s Fedwatch tool, traders are giving 80% odds the US FED will announce a 75 point rate increase this week, and a 20% chance of a 100 point hike. Those bets have changed dramatically over the past week, and the past month, as inflation reports came in worse than many expected, convincing some traders that the only way to stop inflation is to induce a recession

Hurricane Fiona is expected to become a major storm later this week, after running over Puerto Rico and the Dominican Republic. The storm only appears to be targeting defunct refineries having passed near the bankrupt Limetree Bay FKA Hovensa refinery this weekend, and now taking aim at the Come by Chance facility in Newfoundland that is attempting to convert to renewables production, and already facing serious challenges in doing so. 

Money managers continue to act cautiously towards energy contracts, with open interest holding near 5-7 year lows. The large speculative category of traders made small increases in crude oil net length last week, but cut their length in refined products, keeping their total holdings well below the average levels we’ve seen over the past 5 years. 

Baker Hughes reported an increase of 8 oil rigs active in the US last week, snapping a 2 week decline that lowered the US total by 14. Natural gas rigs dropped by 4, wiping out last week’s gain. A WSJ article this morning highlights private drillers nearing their capacity, which helps explain some of why the rig counts seem to have plateaued recently.

The DOE’s leader met with the governors from North Eastern US states last week to discuss concerns over shortages of refined fuel and LNG supply ahead of the winter heating season.  Options on the table appear to be a release of the regional gasoline and heating oil reserves, or waivers on the Jones Act. The energy secretary acknowledged “concern about the low levels of privately held refined product inventories in New England” but did not make any proposals yet on how to deal with the situation.  

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Market Talk Update 09.19.2022

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Market TalkFriday, Jul 19 2024

Summertime-Friday-Apathy Trade Influencing Energy Markets

Energy markets are treading water to start the day as the Summertime-Friday-Apathy trade seems to be influencing markets around the world in the early going. RBOB futures are trying for a 3rd straight day of gains to wipe out the losses we saw to start the week, while ULSD futures continue to look like the weak link, trading lower for a 2nd day and down nearly 3 cents for the week.

Bad to worse: Exxon’s Joliet refinery remains offline with reports that repairs may take through the end of the month. On top of that long delay in restoring power to the facility, ENT reported this morning that the facility has leaked hydrogen fluoride acid gas, which is a dangerous and controversial chemical used in alkylation units. Chicago basis values continue to rally because of the extended downtime, with RBOB differentials approaching a 50-cent premium to futures, which sets wholesale prices just below the $3 mark, while ULSD has gone from the weakest in the country a month ago to the strongest today. In a sign of how soft the diesel market is over most of the US, however, the premium commanded in a distressed market is still only 2 cents above prompt futures.

The 135mb Calcasieu Refinery near Lake Charles LA has been taken offline this morning after a nearby power substation went out, and early reports suggest repairs will take about a week. There is no word yet if that power substation issue has any impacts on the nearby Citgo Lake Charles or P66 Westlake refineries.

Two tanker ships collided and caught fire off the coast of Singapore this morning. One ship was a VLCC which is the largest tanker in the world capable of carrying around 2 million barrels. The other was a smaller ship carrying “only” 300,000 barrels (roughly 12 million gallons) of naphtha. The area is known for vessels in the “dark fleet” swapping products offshore to avoid sanctions, so a collision isn’t too surprising as the vessels regularly come alongside one another, and this shouldn’t disrupt other ships from transiting the area.

That’s (not) a surprise: European auditors have determined the bloc’s green hydrogen goals are unattainable despite billions of dollars of investment, and are based on “political will” rather than analysis. Also (not) surprising, the ambitious plans to build a “next-gen” hydrogen-powered refinery near Tulsa have been delayed.

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Market TalkThursday, Jul 18 2024

Refined Products Stanch Bleeding Despite Inventory Builds And Demand Slump

Refined products are trading slightly lower to start Thursday after they stopped the bleeding in Wednesday’s session, bouncing more than 2 cents on the day for both RBOB and ULSD, despite healthy inventory builds reported by the DOE along with a large slump in gasoline demand.

Refinery runs are still above average across the board but were pulled in PADD 3 due to the short-term impacts of Beryl. The Gulf Coast region is still outpacing the previous two years and sitting at the top end of its 5-year range as refiners in the region play an interesting game of chicken with margins, betting that someone else’s facility will end up being forced to cut rates before theirs.

Speaking of which, Exxon Joliet was reportedly still offline for a 3rd straight day following weekend thunderstorms that disrupted power to the area. Chicago RBOB basis jumped by another dime during Wednesday’s session as a result of that downtime. Still, that move is fairly pedestrian (so far) in comparison to some of the wild swings we’ve come to expect from the Windy City. IIR via Reuters reports that the facility will be offline for a week.

LA CARBOB differentials are moving in the opposite direction meanwhile as some unlucky seller(s) appear to be stuck long and wrong as gasoline stocks in PADD 5 reach their highest level since February, and held above the 5-year seasonal range for a 4th consecutive week. The 30-cent discount to August RBOB marks the biggest discount to futures since 2022.

The EIA Wednesday also highlighted its forecast for rapid growth in “Other” biofuels production like SAF and Renewable Naptha and Propane, as those producers capable of making SAF instead of RD can add an additional $.75/gallon of federal credits when the Clean Fuels Producer’s Credit takes hold next year. The agency doesn’t break out the products between the various “Other” renewable fuels, but the total projected output of 50 mb/day would amount to roughly 2% of total Jet Fuel production if it was all turned to SAF, which of course it won’t as the other products come along for the ride similar to traditional refining processes.

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Pivotal Week For Price Action