Energy Complex Trying To Find A Floor As Gasoline Prices Lead Attempted Rally

Market TalkFriday, Sep 2 2022
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The energy complex is trying to find a floor this morning, with gasoline prices leading an attempted rally after a wave of heavy selling swept the complex earlier in the week.  Diesel prices were resisting the pull higher overnight, after having already dropped 45 cents this week, but have turned slightly positive following the August jobs report.  

California gasoline basis values continued to surge Thursday, as a refinery hiccup turned one of the market’s largest sellers into a buyer.   Regular CARBOB gasoline values in the LA and San Francisco spot markets are trading 85-95 cents over the October RBOB contract, with implied cash values ranging from $3.30-$3.40 this morning, compared to USGC values around $2.38/gallon, which are translating to retail prices in the south dropping below $3/gallon this week.

Meanwhile,  California regulators asked residents not to charge electric vehicles yesterday, one day after announcing an upcoming ban on new gasoline power vehicles.  Maybe they just need higher taxes. 

While West Coast values are surging, East Coast prices have come back to reality, with the spread between NYH and USGC prices reaching a 6 week low yesterday, which has nearly wiped out the premium to ship barrels along the Colonial pipeline.  That correction should help alleviate some of the product tightness across the South East and Florida markets as shippers no longer have the incentive to shift their barrels further north.

G7 leaders are expected to propose a plan to cap prices for Russian oil purchases.  Whatever is announced is likely to have minimal impact on markets however as the Russians are proving capable of circumventing restrictions already imposed by the G7 countries, and hitting a record high export volume in August despite sanctions.

The US added 315,000 jobs in August according to the payrolls report estimate released this morning, while the agency lowered its estimates for July down by 105,000 from 398,000 to 293,000.   The headline unemployment rate ticked up to 3.7% even though jobs increased, while the total unemployed (U-6) figure jumped from 6.7%-7%.  Stocks and fuel prices ticked modestly higher following the report as it seems to be good enough to convince traders we’re not yet in a recession, without being so good that it might encourage the FED to be even more harsh to the free money junkies.

Yesterday the BLS reported that US labor productivity decreased 4.1 percent in the 2nd quarter of 2022 as hours worked increased nearly 3% but actual output declined by 1.4%.  Labor costs increased by 10.2% in the quarter, which is the highest increase in 40 years.  

Tropical Storm Danielle formed in the North Atlantic yesterday and is expected to become a hurricane today.  The good news is that forecasts suggest this storm won’t be a threat to any land over the next week, although it could disrupt shipping traffic between the US and Europe, which has already been stressed by the fallout of Russia’s war on Ukraine.  While the US has been fortunate so far this Hurricane season, South Korea is expected to be slammed by the most powerful storm in that country’s history next week.  While that storm may not have a great impact on US energy markets, it could further complicate the global supply chain challenges.

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

Market Talk Update 09-02-22

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Market TalkFriday, Apr 12 2024

Charts Continue To Favor A Push Towards The $3 Mark For Gasoline, While Diesel Prices May Need To Be Dragged Along For The Ride

Energy prices are rallying once again with the expected Iranian attack on Israel over the weekend appearing to be the catalyst for the move. RBOB gasoline futures are leading the way once again, trading up more than a nickel on the day to reach a fresh 7 month high at $2.8280. Charts continue to favor a push towards the $3 mark for gasoline, while diesel prices may need to be dragged along for the ride.

So far it appears that Motiva Pt. Arthur is the only refinery that experienced a noteworthy upset from the storms that swept across the southern half of the country this week. Those storms also delayed the first round of the Masters, which matters more to most traders this week than the refinery upset.

Chevron’s El Segundo refinery in the LA-area reported an unplanned flaring event Thursday, but the big moves once again came from the San Francisco spot market that saw diesel prices rally sharply to 25 cent premiums to futures. The Bay Area now commands the highest prices for spot gasoline and diesel as the conversion of 1 out of the 4 remaining refineries to renewable output is not-surprisingly creating disruptions in the supply chain.

RIN values dropped back below the 50-cent mark, after the recovery rally ran out of steam last week. The EPA is facing numerous legal challenges on the RFS and other policies, and now half of the US states are challenging the agency’s new rule restricting soot emissions. That lack of clarity on what the law actually is or may be is having widespread impacts on environmental credits around the world and makes enforcement of such policies a bit of a joke. Speaking of which, the EPA did just fine a South Carolina company $2.8 million and require that it buy and retire 9 million RINs for improper reporting from 2013-2019. The cost of those RINs now is about 1/3 of what it was this time last year, so slow playing the process definitely appears to have paid off in this case.

The IEA continues to do its best to downplay global demand for petroleum, once again reducing its economic outlook in its Monthly Report even though the EIA and OPEC continue to show growth, and the IEA’s own data shows “Robust” activity in the first quarter of the year. The IEA has come under fire from US lawmakers for changing its priorities from promoting energy security, to becoming a cheerleader for energy transition at the expense of reality.

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

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Market TalkThursday, Apr 11 2024

Diesel Prices Continue To Be The Weak Link In The Energy Chain

Energy prices are ticking modestly lower this morning, despite warnings from the US that an Iranian attack on Israeli interest is “imminent” and reports of weather induced refinery outages, as demand fears seem to be outweighing supply fears temporarily. Diesel prices continue to be the weak link in the energy chain with both the DOE and OPEC reports giving the diesel bears reason to believe lower prices are coming.

The March PPI report showed a lower inflation reading for producers than the Consumer Price Index report, leading to an immediate bounce in equity futures after the big wave of selling we saw yesterday. To put the CPI impact in perspective, a week ago Fed Fund futures were pricing in an 80% chance of an interest rate cut by the FED’s July 31 meeting, and today those odds have shrunk to 40% according to the CME’s FedWatch tool.

OPEC’s monthly oil market report held a steady outlook for economic growth and oil demand from last month’s report, noting the healthy momentum of economic activity in the US. The cartel’s outlook also highlighted significant product stock increases last month that weighed heavily on refining margins, particularly for diesel. Given the US focus on ULSD futures that are deliverable on the East Coast, which continues to have relatively tight supply for diesel, it’s easy to overlook how quickly Asian markets have gotten long on distillates unless of course you’re struggling through the slog of excess supply in numerous west coast markets these days. The OPEC report noted this in a few different ways, including a 33% decline in Chinese product exports as the region simply no longer needs its excess. The cartel’s oil output held steady during March with only small changes among the countries as they hold to their output cut agreements.

If you believe the DOE’s diesel demand estimates, there’s reason to be concerned about domestic consumption after a 2nd straight week of big declines. The current estimate below 3 million barrels/day is something we typically only see the week after Christmas when many businesses shut their doors. We know the DOE’s figures are missing about 5% of total demand due to Renewable Diesel not being included in the weekly stats, and it’s common to see a drop the week after a holiday, but to lose more than a million barrels/day of consumption in just 2 weeks will keep some refiners on edge.

Most PADDs continue to follow their seasonal trends on gasoline with 1 and 2 still in their normal draw down period, while PADD 3 is rebuilding inventories faster than normal following the transition to summer grade products. That rapid influx of inventory in PADD 3 despite robust export activity helps explain the spike in premiums to ship barrels north on Colonial over the past 2 weeks. Gasoline also saw a sizeable drop in its weekly demand estimate, but given the holiday hangover effect, and the fact that it’s in line with the past 2 years, there’s not as much to be concerned about with that figure. While most of the activity happens in PADDs 1-3, the biggest disconnect is coming in PADDs 4 and 5, with gasoline prices in some Colorado markets being sold 50 cents or more below futures, while prices in some California markets are approaching 90 cents above futures.

Severe weather sweeping across the southern US knocked several units offline at Motiva’s Pt Arthur plant (the country’s largest refinery) Wednesday, and it seems likely that Louisiana refineries will see some disruption from the storm that spawned tornadoes close to the Mississippi River refining hub. So far cash markets haven’t reacted much, but they’ll probably need more time to see what damage may have occurred.

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

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