Energy Complex Finished Mixed Yesterday

Market TalkThursday, Aug 22 2019
Energy Complex Trading Lower on OPEC news today

The energy complex finished mixed yesterday after a lackluster inventory report from the DOE. Crude oil stocks drew down just under 3 million barrels last week, about half a million barrels less than the API’s estimate. Diesel stocks rose over 2.5 million barrels and gasoline levels bumped by +300k barrels. Prices seemed to react the opposite as expected given the headline values with Crude oil losing about 50 cents on the day, RBOB and HO adding $.0127 and $.0030 per gallon respectively.

The Tanker Saga™ continues: after British forces in Gibraltar released an Iranian tanker earlier last week, reports had the transport headed to Syria via Greece, much to Washington’s chagrin. Military action seems to be halted as of now as Greece reports it will not help the tanker reach its intended destination, and ultimately assist the Iran Revolutionary Guard, easing tensions in the area.

Atlantic cyclone Chantal was downgraded to a tropical depression overnight and does not pose any threat of landfall at this time. While meteorologists only anticipate rough seas resulting from the latest named storm, attention now shifts to the Atlantic basin as a whole, ripe with warm water ready for tropical development, as we head into peak hurricane season.

If all the headlines about the persistence of an oil supply glut aren’t convincing enough, the Department of Energy announced yesterday that it will be selling 10 million barrels of crude oil out of the Strategic Petroleum Reserve by the end of August. While the liquidation is part of a mandatory sales program, set to sell 260 million barrels through 2027, the news seems to fall in line with multiple recent reports suggesting the world’s got too much oil going into 2020. It will be interesting to see how energy economics react, given its history of correction and even over-correction, as crude oil bulls (read OPEC), continue their push for higher prices. While that seems like a hopeless cause for the cartel, climate activists might lend an inadvertent hand in their cause.

CLICK HERE for a PDF of today's charts

Energy Complex Finished Mixed Yesterday gallery 0

News & Views

View All
Pivotal Week For Price Action
Market TalkFriday, Mar 24 2023

Correlation Confusion Between Oil, Stock, And Currency Markets; US Drops Plan to Replenish SPR

Oil prices are leading a slide lower to end the week after the US government walked back plans to buy oil since it’s dropped below $70, and the latest ripples in the banking crisis push stocks lower and the dollar sharply higher after it touched a 2-month low Thursday. 

Even though the correlation between energy prices and stocks or currencies has been weak lately, or even opposite of normal in the case of the dollar, there still seems to be more influence lately as the fear trade has funds flowing back and forth between markets depending on whether or not risk-taking is in style that day. 

The US Energy Secretary told congress that the agency won’t be refilling the SPR this year, despite previous pledges by the White House to buy oil when it dropped to $70, since the agency is still working through congressionally mandates sales of oil from the reserve.  That news seems to be contributing to the downside in WTI and Brent prices as traders hoping to front run the DOE are now going to have to wait a while longer to do so.

Even though ULSD prices are up 17 cents from the lows set last week, they’re still on the verge of their lowest weekly settlement since January of 2022 should prices end the day near current levels. Given that this week’s recovery rally failed to take out the highs seen in previous weeks, charts continue to look bearish for distillates. Another run at $2.50 looks more likely and a break below that level, when the May contract takes the prompt position in another week, may be a foregone conclusion.

As has been the case for most of March, RBOB look as bad as ULSD on the charts, although that certainly isn’t helping so far today with gasoline futures outpacing the losses in diesel.  Unless we see RBOB end the day down a dime or more (it’s down a nickel currently) the weekly trend will still be higher, and the charts will still be giving favor to another push towards $2.80-$3 this spring.

The LA spot market saw a healthy bounce in gasoline basis values Thursday following multiple refinery upsets in the area reported to local regulators. Meanwhile, the California Governors new plan to create an oversight committee to prevent price gouging – a major change from earlier proposals to levy a new tax on oil producers and refiners – passed through the Senate on Thursday. If this new bill is fully passed, it will allow the Governor to appoint that committee himself. A 1,000-page prediction of how that plan will work is available for less than $10 on Amazon.

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

Pivotal Week For Price Action
Market TalkThursday, Mar 23 2023

FOMC Rate Increase Rocks Equity Markets, Energy Futures Unshaken

Stocks didn’t like the FOMC’s move to increase the fed funds rate by 25 points even as it acknowledged that recent banking developments will weigh on economic activity, or the economic projections that showed inflation expectations moving higher than previously forecast and had their worst day in 2 weeks following those announcements. 

Even though energy and equity markets have seen their correlation strengthen in March following the banking crisis, the drop in equities did little to slow the recovery rally in energy that stretched to a third day Wednesday. We are seeing a more cautious start this morning with both WTI and ULSD seeing modest losses early, while RBOB continues to push higher for a 4th day. 

Gasoline futures are seeming to get a small boost from reports that Monroe was forced to shut an FCC unit at its Trainer PA refinery following a fire Monday. As the charts below show, PADD 1 refinery runs are already at the low end of their seasonal range due to turnaround work at the P66 Bayway facility. Prices to ship products on Colonial have been trading in negative territory lately, and gasoline traders will not want to buy Gulf Coast barrels that have already transitioned to summer grades and bring them to the East Coast that still has a few weeks left to sell winter-grade product, but if this outage is extended, we could see that change next week.

Reports suggest 13% of French fueling stations are tight on supply due to the continuing refinery strikes, with some regions seeing as many as half of their stations out of fuel. The supply disruptions continue to get minimal reaction from global markets with only modest strengthening in time and crack spreads observed so far.  A glut of distillates in Asia, as the Eastern hemisphere deals with an influx of Russian exports (aka the opposite problem the Western hemisphere had last year) is contributing to the lack of reaction to the latest supply disruption.

The EIA reported another 2 million barrels/day of crude oil inventory adjustments last week, while strong exports held domestic inventories steady despite another 14 million barrels being found.  The agency also released its report on its findings for the rapidly growing adjustment, and its plan to update its weekly survey to help the data make more sense. The report admits that the agency has been inadvertently overstating domestic petroleum consumption, by counting light hydrocarbons and unfinished oils blended into crude as if they’ve been used by consumers, which explains the “record high” total demand even while refined products have seen declines in their figures.

Both gasoline and diesel demand did see healthy increases last week, marking a 2nd straight week of improving numbers for both. Diesel consumption is still at the low end of its seasonal range despite two weeks of growth in the EIA’s estimates, while gasoline is just below its 5-year average for this time of year. Retail prices for both are now approaching $1/gallon less than they were a year ago, which should help give a boost to consumption as we move further into spring.

PADD 5 refinery runs saw another healthy increase last week, and a tick up in imports, both of which might help explain the big declines in gasoline and diesel basis values we’ve seen in the past two weeks.  In addition, Wednesday saw a pipeline deal for RD99 executed in the LA market, which will certainly be the first of many as that rapidly increasing supply comes to market. ULSD values did recover from Tuesday’s attempt to liquidate with no liquidity that briefly pushed values down a theoretical 45 cents for the day, although prompt values are still going for 20+ cent discounts to April futures.


The EIA did not yet report Exxon’s 250,000 barrel/day expansion at its Beaumont facility, even though those units have been running for several weeks now. The facility did report an upset in a hydrocracker unit Wednesday, although the impact of that event is still unclear.

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
Market TalkWednesday, Mar 22 2023

Energy Futures Mixed Ahead Of DOE Report And Fed Announcement

Energy futures were calmly waiting on the FED’s 1pm announcement, like many markets around the world, with small and mixed results overnight. Diesel started to make a more meaningful rally attempt as we approach 8am central, moving higher for a 5th straight session, with stronger spreads signaling that refinery disruptions in Europe may finally be having some impact on prices now that most of the banking fears seem to have subsided.   

The CME’s Fedwatch tool shows that expectations for a rate increase have risen in the past week, with just 10% betting the FED will hold rates steady today compared to 45% a week ago when the banking crisis was stirring all sorts of fears.  It’s worth noting that there’s a 60% probability that the FED will raise rates by 50 points over the next 3 meetings, then 50% odds that rates will end up lower than they are now by the end of the year. 

The API estimated gasoline stocks dropped by 1 million barrels last week, while diesel declined by 1.8 million. Crude oil inventories increased by 3.2 million barrels on the week as production held steady near 12.2 million barrels/day. The EIA’s weekly report is due out at its normal time this morning. The agency is still struggling to get a consistent and accurate tally on crude oil inventories due to the growing impact of condensate production on both inventory and export readings. We should also see the largest increase in refinery capacity reported today after Exxon officially brought its new 250mb/day units online at Beaumont TX last week.

France is attempting to requisition refinery workers to get them back on the job and get energy supplies flowing again. After 2 weeks of strikes, the impacts on diesel and crude prices are starting to appear, albeit in much less dramatic fashion than we saw last fall. Both time spreads and crack spreads for diesel have been marching higher over the past week but remain just a fraction of what we saw last year.

The last day of March pipeline trading brought fireworks in the LA spot market Wednesday with a seller of EPA ULSD #2 trapped without any buyers and offering prices all the way down to a 50 cent/gallon discount to futures without a trade ever getting done. Meanwhile multiple bidders for CARB ULSD #2 appeared but no offers at the suddenly huge discounts appeared, leaving the market dislocated, and those making price assessments grasping for straws.   

April cycles should bring more liquidity, and many traders will be returning to the office following the annual AFPM (RIP NPRA) conference, so we should get a better feel for reality today. That said, more big swings are possible however as pipeline space to bring barrels east from LA is maxed out and a scramble for CBG gasoline to supply Phoenix taking up much more capacity than normal due to refinery downtime in other markets may leave diesel stuck at its origin points and put downward pressure on spot prices for the next month or so. The good news for consumers on the West Coast is that wholesale diesel prices are now down more than $2/gallon from where they were 6 months ago, which should help alleviate some of the pain they were feeling last year when retail values surged north of $6.

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