Energy And Equity Markets Limp To Finish Line
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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Energy Prices Fluctuate: Chinese Imports Surge, Saudi Arabia Cuts Output and Buys Golf
Energy prices continue their back-and-forth trading, starting Wednesday’s session with modest gains, after a round of selling Tuesday wiped out the Saudi output cut bounce.
A surge in China’s imports of crude oil and natural gas seem to be the catalyst for the early move higher, even though weak export activity from the world’s largest fuel buyer suggests the global economy is still struggling.
New tactic? Saudi Arabia’s plan to voluntarily cut oil production by another 1 million barrels/day failed to sustain a rally in oil prices to start the week, so they bought the PGA tour.
The EIA’s monthly Short Term Energy Outlook raised its price forecast for oil, citing the Saudi cuts, and OPEC’s commitment to extend current production restrictions through 2024. The increase in prices comes despite reducing the forecast for US fuel consumption, as GDP growth projections continue to decline from previous estimates.
The report included a special article on diesel consumption, and its changing relationship with economic activity that does a good job of explaining why diesel prices are $2/gallon cheaper today than they were a year ago.
The API reported healthy builds in refined product inventories last week, with distillates up 4.5 million barrels while gasoline stocks were up 2.4 million barrels in the wake of Memorial Day. Crude inventories declined by 1.7 million barrels on the week. The DOE’s weekly report is due out at its normal time this morning.
We’re still waiting on the EPA’s final ruling on the Renewable Fuel Standard for the next few years, which is due a week from today, but another Reuters article suggests that eRINs will not be included in this round of making up the rules.
Click here to download a PDF of today's TACenergy Market Talk.
Week 23 - US DOE Inventory Recap
Energy Prices Retreat, Global Demand Concerns Loom
So much for that rally. Energy prices have given back all of the gains made following Saudi Arabia’s announcement that it would voluntarily withhold another 1 million barrels/day of oil production starting in July. The pullback appears to be rooted in the ongoing concerns over global demand after a soft PMI report for May while markets start to focus on what the FED will do at its FOMC meeting next week.
The lack of follow through to the upside leaves petroleum futures stuck in neutral technical territory, and since the top end of the recent trading range didn’t break, it seems likely we could see another test of the lower end of the range in the near future.
RIN prices have dropped sharply in the past few sessions, with traders apparently not waiting on the EPA’s final RFS ruling – due in a week – to liquidate positions. D6 values dropped to their lowest levels in a year Monday, while D4 values hit a 15-month low. In unrelated news, the DOE’s attempt to turn seaweed into biofuels has run into a whale problem.
Valero reported a process leak at its Three Rivers TX refinery that lasted a fully 24 hours. That’s the latest in a string of upsets for south Texas refineries over the past month that have kept supplies from San Antonio, Austin and DFW tighter than normal. Citgo Corpus Christi also reported an upset over the weekend at a sulfur recovery unit. Several Corpus facilities have been reporting issues since widespread power outages knocked all of the local plants offline last month.
Meanwhile, the Marathon Galveston Bay (FKA Texas City) refinery had another issue over the weekend as an oil movement line was found to be leaking underground but does not appear to have impacted refining operations at the facility. Gulf Coast traders don’t seem concerned by any of the latest refinery issues, with basis values holding steady to start the week.
Click here to download a PDF of today's TACenergy Market Talk.