Energy And Equity Markets Limp To Finish Line

Market TalkThursday, Dec 31 2020
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Energy and equity markets are limping to the finish line with minor losses in the early going to end this long strange year.  The table below highlights the dramatic swings, and very different outcomes for some of the most watched commodity, equity and currency contracts. 

Today is expiration day for the January (21) ULSD and RBOB contracts so watch the February contracts for price direction today, and note that most rack prices published tonight should carry through the long weekend since markets are closed tomorrow. 

It’s been a brutal year for many, and the energy industry has certainly taken its lumps. Record setting amounts of debt were subject to bankruptcy filings in the oil patch, but things have arguably been worse for refiners as crack spreads have only made minor improvements compared to the recovery in oil prices, and the industry saw the most permanent closures announced in more than 30 years as a result. 

The pace and scale of demand recovery will be the big underlying story for 2021, as the world races to distribute vaccines and get people back to a more normal existence, while a new and more potent strain of COVID threatens to derail that progress. There will be plenty of theories about how the new administration in Washington will change the landscape for several industries – ours being one of the most noteworthy – but unless the Senate is flipped in the January runoff, it seems like major legal changes are unlikely in the near term.   

The Crescendo of emission reduction plans is likely to continue to build in 2021 as more big oil and refining companies lay out plans to reduce their pollution levels during the long slow transition away from fossil fuels. The Dallas Fed issued a special report this week taking a look at what the industry is doing to battle climate change, and highlighting pipeline capacity as one of the keys to reducing emissions near term.   Renewable diesel is becoming the poster child for a way forward for motor fuels to have a legitimate renewable option near term as ethanol and biodiesel have already pushed the limits of their usefulness.  The EIA is ending the year by highlighting the progress made on the renewable front as US consumption of those products surpassed coal in 2019 for the first time in 130 years.

3 more drilling rigs were put to work last week, marking the 12th increase in 14 weeks. According to the Baker Hughes report, we started the year with 877 rigs drilling for oil on land in the US, which ended up being the highest count of the year. That number hit a record low in August at 172, before starting a slow and steady recovery over the past 3 months as prices got back to more survivable levels and operators faced hard decisions on whether to drill or risk giving up leases in some cases.

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

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Market TalkFriday, Feb 23 2024

The DOE Report Sparked A Solid Rally In Energy Futures Thursday, But That Upward Momentum Proved Short-Lived

The DOE report sparked a solid rally in energy futures Thursday, but that upward momentum proved short-lived as prices gave back those gains overnight, despite US equity markets surging to all-time highs.

The weekly inventory report showed US refiners are struggling to come back online from a busy maintenance season that was further complicated by January’s cold snap and the unexpected shut down at BP Whiting. Refinery utilization held near 80% on the week, which helped pull gasoline inventories lower despite sluggish demand and a surge in imports along the East Coast. Diesel demand showed a big recovery from last week’s ugly estimate, and when you factor in the missing 4-5% that doesn’t show up due to RD not being included in the reports, actual consumption looks much healthier than the report suggests.

Based on reports of restarts at several major refineries this week, we should see those utilization numbers pick up in next week’s report.

The EPA Thursday approved year-round E15 sales in 8 corn-growing states, despite the fact that the extra ethanol blends have been shown more to pollute more in the warm times of the year. The effective date was pushed back a year however in a show of election-year tight rope walking, which the EPA couched as ensuring that the move wouldn’t lead to a spike in fuel prices this summer.

Of course, the law of unintended consequences may soon be at play in a region that tends to be long gasoline supply for large parts of the year. Removing 5% of the gasoline demand could be another nail in some of the smaller/less complex refineries’ coffins, which would of course make fuel supply less secure, which contradicts one of the main arguments for making more 198 proof grain alcohol and selling it as fuel. Ethanol prices meanwhile continue to slump to multi-year lows this week as low corn prices continue to push unusually high production, and the delayed effective date of this ruling won’t help that.

While Nvidia’s chip mania is getting much of the credit for the surge in equity prices this week, there was also good news for many more companies in reports that the SEC was planning to drop its requirements on Scope 3 emissions reporting which is particularly useful since most people still can’t figure out what exactly scope 3 emissions really are.

In today’s segment of you can’t make this stuff up: The case of chivalry gone wrong with the BP/TA acquisition, and a ketchup caddy company caught spoofing electric capacity.


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 TalkThursday, Feb 22 2024

RBOB And ULSD Futures Down Around 2.5 Cents After A Mixed Performance Wednesday

Refined products are leading the energy complex lower to start Thursday’s trading with both RBOB and ULSD futures down around 2.5 cents after a mixed performance Wednesday.

The API reported another large build in crude oil inventories last week, with inventories up more than 7 million barrels while gasoline inventories increased by 415,000 barrels and diesel stocks dropped by 2.9 million. The crude oil build was no doubt aided once again by the shutdown of BP’s Whiting refinery that takes nearly ½ million barrels/day of oil demand out of the market. That facility is said to be ramping up operations this week, while full run rates aren’t expected again until March. The DOE’s weekly report will be out at 11am eastern this morning.

Too much or not enough? Tuesday there were reports that the KM pipeline system in California was forced to shut down two-line segments and cut batches in a third due to a lack of storage capacity as heavy rains have sapped demand in the region. Wednesday there were new reports that some products ran out of renewable diesel because of those pipeline delays, bringing back memories of the early COVID lockdown days when an excess of gasoline caused numerous outages of diesel.

The Panama Canal Authority has announced $8.5 billion in sustainability investments planned for the next 5 years. Most of those funds are aimed at sustainability efforts like modernizing equipment and installing solar panels, while around $2 billion is intended for a better water management system to combat the challenges they’ve faced with lower water levels restricting transit by 50% or more in the past year. More importantly in the near term, forecasts for the end of the El Nino pattern that contributed to a record drought, and the beginning of a La Nina pattern that tends to bring more rain to the region are expected to help improve water levels starting this summer.

The bad news is that La Nina pattern, coupled with historically warm water temperature has Accuweather forecasters sounding “Alarm Bells” over a “supercharged” hurricane season this year. Other years with a similar La Nina were 2005 which produced Katrina, Rita and Wilma and 2020 when we ran out of names, and the gulf Coast was repeatedly pummeled but markets didn’t react much due to the COVID demand slump. Perhaps most concerning for the refining industry is that unlike the past couple of years when Florida had the bullseye, the Texas coast is forecast to be at higher risk this year.

RIN prices continued their slide Wednesday morning, trading down to 38 cents/RIN before finally finding a bid that pushed values back to the 41-42 cent range by the end of the day.

The huge slide in RIN values showed up as a benefit in Suncor’s Q4 earnings report this morning, as the Renewable Volume Obligation for the company dropped to $4.75/barrel vs $8.55/barrel in Q4 of 2022. Based on the continued drop so far in 2024, expect that obligation to be nearly cut in half again. Suncor continued the trend of pretty much every other refiner this quarter, showing a dramatic drop in margins from the record-setting levels in 2022, but unlike a few of its counterparts over the past week was able to maintain positive earnings. The company noted an increase in refining runs after recovering from the Christmas Eve blizzard in 2022 that took down its Denver facility for months but did not mention any of the environmental challenges that facility is facing.

Valero’s McKee refinery reported a flaring event Wednesday that impacted multiple unites and lasted almost 24 hours. Meanwhile, Total reported more flaring at its Pt Arthur facility as that plant continues to struggle through restart after being knocked offline by the January deep freeze.

Speaking of which, the US Chemical Safety board released an update on its investigation into the fire at Marathon’s Martinez CA renewable diesel plant last November, noting how the complications of start -up leave refineries of all types vulnerable.

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