Energy Bulls Pass Big Test With Flying Colors

Market TalkFriday, Jul 9 2021
Pivotal Week For Price Action

The energy bulls passed their first big test in 3 months with flying colors this week, bouncing off of trend support early Thursday morning, then extending those gains later in the day following a bullish report from the DOE, and keeping that momentum going this morning. Big draws in oil and gasoline inventories, and an all-time record for gasoline demand estimates, highlighted the DOE’s weekly report, and sent prices on an immediate rally that was able to sustain through the afternoon and the overnight session. 

The EIA’s total petroleum “demand” estimate surpassed 21 million barrels/day last week, a new high since the start of the pandemic, and higher than we were at this point in 2019.  That surge was led by a 10% spike in gasoline demand, which reached its highest weekly level in 30 years of data provided from the DOE. While the 4-week average (which is deemed much more reliable than the weekly number) is still trailing pre-pandemic levels, that spike north of 10 million barrels/day (the first time that’s ever happened) is a signal that US consumers are ready to move. We are likely to see a dose of reality next week as the post-holiday hangover has hit demand across the country, and the rain Elsa is dumping along the east coast likely is keeping cars off the road this week. Diesel demand estimates slipped on the week, but remain above both their 5 year average and 2019 levels for this time of year.

Refiners look to be up to the challenge of surging demand, raising gasoline output north of 10.5 million barrels/day for just a 3rd time ever, even though total run rates remain well below where we’d expect them this time of year, and 5% of capacity going away permanently over the past year. That said, as the wide spread in rack prices across the country shows, just because refiners can produce enough fuel in total to continue outpacing US consumption, that doesn’t mean the pipeline network is equipped to get that fuel where it needs to be, particularly in the Western half of the country.  

US Oil production did rise to 11.3 million barrels/day, another post-pandemic high. A WSJ article today suggests that American frackers are showing restraint with prices near 6 year highs, choosing to pay off debts rather than plow money into more drilling. While that sounds interesting, for an industry that does not do moderation, it seems like the supply-chain shortages being dealt with in so many industries may be a bigger factor. It will be interesting to see if we get a few more months of prices in the $70s, if the group long known as wildcatters will still be restrained.

If you need some weekend reading material (or are having trouble sleeping) check out BP’s annual world energy statistical review. The report highlights the record setting extremes we witnessed in 2020, details the progress the world is making on renewable energy sources, and notes why those efforts still fall far short of what would be needed to become carbon neutral.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the weekly DOE Report.

TACenergy MT 7.9.21

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Pivotal Week For Price Action
Market TalkFriday, Dec 9 2022

Energy Futures Are Seeing Modest Gains To Start Friday’s Session

Energy futures are seeing modest gains to start Friday’s session, limping towards the finish line of a week that’s pushed prices to their lowest levels of the year, and cut 20-30 cents off of refined products. 

WTI futures have had a fairly muted reaction to news that the Keystone pipeline was forced to shut after more than ½ million gallons reportedly spilled into a Kansas creek this week. A timeline for restart is still unclear, but so far the price action suggests refiners aren’t panicking about where they’ll find replacement barrels, and those north of the spill may be rewarded with discounted barrels that now find themselves stranded, such as Western Canadian Select which is now trading down to $50/barrel.  

If RBOB can finish in the green today, it would mark the first trading day so far in December where the gasoline contract didn’t end lower, after 6 straight losing sessions. Cash markets are also looking weak, as the spread between gasoline prices in New York and the Gulf Coast dropped to its lowest level since early October this week, putting downward pressure on the price to lease space on Colonial’s Line 1. With refiners running full out to capture huge diesel margins, gasoline is becoming an unwelcome byproduct in many markets, and could become oversupplied in some regions in the near future, which could force some plants to reduce run rates. 

Distillate prices are seeing a similar convergence with the spread between Gulf and East coasts now less than 30 cents/gallon, which is more than $1/gallon lower than it was a month ago. Softer demand for both products due to the seasonal slowdown in gasoline and unseasonably warm weather limiting Heating Oil consumption are both getting credit for these cash markets suddenly returning to something more closely resembling what we’re used to seeing. 

Bad news is good news for stock markets as any negative data points may give the FED reason to slow their interest rate hikes.  Yesterday we saw stocks rally after an increase in jobless claims in the US. Today we’re seeing stocks give back some of yesterday’s gains after the PPI report showed inflation is remaining stubbornly high and above many forecasts, giving the FED another reason to continue with its tightening. Energy contracts continue to have a weak correlation to daily moves in equity prices, so it’s not too surprising we are seeing a small rally today even though stocks are pulling back.

Chinese refiners are racing to take advantage of liberal quotas this year and are expected to reach a record level of refined fuel exports this month.  Those supplies have provided a much needed supplement for a world short on distillates, but there are many questions and few answers about what they’ll look like next year.

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

Pivotal Week For Price Action
Market TalkThursday, Dec 8 2022

Refined Product Prices Are Bouncing Moderately This Morning After Selling Off Heavily For A Fifth Consecutive Trading Session Yesterday

Refined product prices are bouncing moderately this morning after selling off heavily for a fifth consecutive trading session yesterday. Heating oil futures have dropped over 50 cents per gallon since the beginning of the month as traders reconcile rebounding national distillate inventories, a warmer-than-expected European winter, dismal Chinese demand outlook, and the execution of the ban on Russian oil exports. Gasoline futures have dropped just over 25 cents so far in December while the West Texas Intermediate crude oil contract has fallen just $5 per barrel since last week.

The Department of Energy reported a 5.2 million barrel draw in crude oil inventories last week, marking the fourth consecutive week of stockpile drawdowns. On the flip side, national gasoline and diesel stocks likewise grew for the fourth week in a row, which makes sense given refineries are running near their 5-year seasonal high. Total refined product demand continued to sink, as typical of this time of year before everyone jumps in their cars to drive to grandma’s for Christmas.  

Oil futures have fallen below the $80 mark this week and have now given up all gains seen since Russia invaded Ukraine. While China’s relaxation of their pandemic policy should provide some upward pressure on oil prices, in theory, it seems most aren’t convinced the lack of restrictions will translate to increased petroleum demand.

Premiums to ship gasoline and diesel on the Colonial Pipeline (the main US’s petroleum artery going from Houston to New York) have dropped significantly over the past few days. Shippers can now move gasoline up the Eastern seaboard for “only” 9 cents above the pipeline’s tariff, which is the lowest its been since October. Moving diesel to the Northeast will run you 7 cents over costs.

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

Pivotal Week For Price Action
Market TalkWednesday, Dec 7 2022

The Downward Price Action Seen In Monday’s Trading Session Continued Into Tuesday

The downward price action seen in Monday’s trading session continued into Tuesday and energy futures charts are poised to test some significant resistance levels. Most notably, the prompt month ULSD futures contract is set to test its 100-week moving average at the ~$2.80 level, beyond which the path is open for prices to fall down to the $2.20s.

WTI crude oil futures face a tough test these next couple months as it bears down on its 200-month moving average which, if broken, could lead prices down to the $65 range. The energy complex is bouncing this morning, albeit moderately, on the news that China is abandoning its COVID testing and quarantine protocols. The mild upward price action suggests traders are hesitant to believe that will translate to a return of energy demand.

The Energy Information Administration published its monthly Short Term Energy Outlook yesterday, highlighting its higher-than-expected global oil inventory level estimate for 2023. The EIA also noted that the execution of the ban on Russian seaborne petroleum products by the European Union has rendered the future of distillate remarkedly hazy. Price direction for diesel’s home-heating counterpart seems a little easier to forecast: moderately higher prices are expected through January as winter sets in and demand ramps up.

The American Petroleum Institute reported a sizeable 6.4 million barrel draw in US crude oil inventories last week, along with builds in refined product stocks of 5.9 million barrels and 3.6 million barrels of gasoline and diesel, respectively. The official report published by the Department of Energy is due to come out at its regular time this morning (9:30am CST) and its confirmation or contradiction of the API’s estimate will likely determine the day’s trading sentiment.

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