Energy And Equity Markets Are Pointing Sharply Lower This Morning
So much for that rally. Energy and equity markets are pointing sharply lower this morning, after Tuesday’s big rally ran out of steam in the afternoon. For refined products, 15 cent morning gains were largely wiped out heading into Tuesday’s close, an ominous technical signal that encouraged more follow through selling overnight. For stocks, those that suggested Tuesday’s rally was a dead cat bounce are looking like they know what they’re talking about (for now) as the world continues to try and figure out what happens when we stop giving money away for free.
The US President is expected to call on congress to suspend federal gasoline & diesel taxes for 3 months today, and ask states to provide similar relief on their own taxes. If congress agrees on this plan (which seems almost comical) and the states follow suit, the average retail fuel price could drop by around 50 cents/gallon, which is a meaningful amount for consumers. That (theoretical) price drop could help spur demand, which given the tight supply situation may actually lead to higher prices later in the year than if they allowed high prices to heal themselves as they tend to do.
The IEA’s head warned that Russia could cut off natural gas supplies to Europe completely this winter, when that supply is most needed, in an effort to continue using the energy weapon to win the war in Ukraine. Those remarks coincided with the agency’s World Energy Investment report, which highlighted a record amount of spending on renewable fuels in 2022, while stating that the amount is still not nearly enough to reach the climate pledge goals around the world. The report also noted the near record refinery capacity retirement over the past 2 years and the impact it’s having on global supply/demand balances.
A drone attack on a Russian refinery overnight was another reminder that it’s a lot easier to destroy a refinery than it is to build one, which is a big reason why there are no short term supply solutions to the current situation.
The Dallas FED released a study on high fuel prices Monday and highlighted the expected drop in demand they will bring later this year.
Pent-up demand for travel (particularly foreign travel) amid easing COVID-19 restrictions could be a reason U.S. fuel consumption remains sticky. This may provide only a temporary uplift through August, when the summer travel season winds down. At the same time, a proliferation of work-from-home options gives many workers the ability to reduce their commuting fuel use—which is roughly 30 percent of gasoline consumption—relative to pre-COVID-19 levels. All told, fuel prices may be closer to consumers’ pain threshold than inflation-adjusted prices might suggest. And if prices climb higher, expect consumers to respond by cutting back on fuel consumption and overall spending sooner than later.
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.