Energy Continue Lower on Lower Chinese Imports, Saudi Oil Stockpile

Market TalkTuesday, Jun 20 2023
Pivotal Week For Price Action

Energy futures are giving back a big portion of the strong gains they saw last week as economic uncertainties continue to send mixed signals to financial markets. Meanwhile, severe weather has caused numerous local disruptions over the past week and is sparking concerns about more widespread issues as hurricane season is ramping up ahead of schedule.    

Reminder that due to the holiday, the price changes you’re seeing today are relative to Friday’s levels, not in addition to the losses made in the abbreviated futures trading session Monday.

Last week strong Chinese refinery runs were often cited for the move higher in fuel prices, but this week a drop off in Chinese fuel oil imports is getting blamed for some of the pullback as the economic recovery of 1.3 billion people getting out of lockdown seems to have hit a speed bump

So that’s why they’re cutting output? Reports that Saudi Arabia is sitting on more than 20 million barrels of oil in floating storage aren’t helping encourage buyers to step in so far this week, particularly since the market structure isn’t encouraging storage plays, and may instead be signaling a lack of buyers. 

Tropical Storm Bret was named Monday and is expected to strengthen to a hurricane by tomorrow.  The forecasts are widely varied for this unusual June storm, with most models suggesting the storm will either continue West and hit Central America, or hook north and head out to sea, although a few models do give an outside chance of a threat to Florida or further north along the East Coast so we can’t ignore it completely.  Right behind Bret, another storm system is given 80% odds of development this morning, although early forecasts have it heading north and staying offshore for now.

While forecast tracks suggest low odds that either tropical system makes landfall in the US, large parts of the country are still facing severe weather threats and flooding rains from inland storms. So far there have been several power outages reported at refineries over the past week stretching from the TX panhandle to the Delek facility in Tyler TX, and Calumet’s refinery in Shreveport along with several East Texas terminals reporting short term power and fuel outages.

Tulsa Oklahoma declared a state of emergency after storms knocked out power to hundreds of thousands of homes and businesses, and disrupted terminal activities at 2 local product racks. The HF Sinclair refinery is also reported to be without power, which is sparking concerns of localized fuel shortages if the lights aren’t turned back on soon. The Tulsa area also holds key break-out tankage for the Explorer and Magellan pipelines that bring products from the Gulf Coast to the Midwest, and while no operational upsets have yet been reported at the pipeline facilities, it seems unlikely they escaped the storms unscathed given their close proximity to the other issues.

So far, the larger refineries along the coast that make up the heart of US fuel production have not yet been impacted, and the storms are largely staying north and east of those facilities, although New Orleans-area plants are very close to a round of heavy thunderstorms and could still see some weather-related disruptions this week.

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

Market Talk Update 06.20.2023

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Market TalkFriday, May 17 2024

The Recovery Rally In Energy Markets Continues For A 3rd Day

The recovery rally in energy markets continues for a 3rd day with refined product futures both up more than a dime off of the multi-month lows we saw Wednesday morning. The DJIA broke 40,000 for the first time ever Thursday, and while it pulled back yesterday, US equity futures are suggesting the market will open north of that mark this morning, adding to the sends of optimism in the market.

Despite the bounce in the back half of the week, the weekly charts for both RBOB and ULSD are still painting a bearish outlook with a lower high and lower low set this week unless the early rally this morning can pick up steam in the afternoon. It does seem like the cycle of liquidation from hedge funds has ended however, so it would appear to be less likely that we’ll see another test of technical support near term after this bounce.

Ukraine hit another Russian refinery with a drone strike overnight, sparking a fire at Rosneft’s 240mb/day Tuapse facility on the black sea. That plant was one of the first to be struck by Ukrainian drones back in January and had just completed repairs from that strike in April. The attack was just one part of the largest drone attack to date on Russian energy infrastructure overnight, with more than 100 drones targeting power plants, fuel terminals and two different ports on the Black Sea. I guess that means Ukraine continues to politely ignore the White House request to stop blowing up energy infrastructure in Russia.

Elsewhere in the world where lots of things are being blown up: Several reports of a drone attack in Israel’s largest refining complex (just under 200kbd) made the rounds Thursday, although it remains unclear how much of that is propaganda by the attackers and if any impact was made on production.

The LA market had 2 different refinery upsets Thursday. Marathon reported an upset at the Carson section of its Los Angeles refinery in the morning (the Carson facility was combined with the Wilmington refinery in 2019 and now reports as a single unit to the state, but separately to the AQMD) and Chevron noted a “planned” flaring event Thursday afternoon. Diesel basis values in the region jumped 6 cents during the day. Chicago diesel basis also staged a recovery rally after differentials dropped past a 30 cent discount to futures earlier in the week, pushing wholesale values briefly below $2.10/gallon.

So far there haven’t been any reports of refinery disruptions from the severe weather than swept across the Houston area Thursday. Valero did report a weather-related upset at its Mckee refinery in the TX panhandle, although it appears they avoided having to take any units offline due to that event.

The Panama Canal Authority announced it was increasing its daily ship transit level to 31 from 24 as water levels in the region have recovered following more than a year of restrictions. That’s still lower than the 39 ships/day rate at the peak in 2021, but far better than the low of 18 ships per day that choked transit last year.

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

Pivotal Week For Price Action
Market TalkThursday, May 16 2024

Energy Prices Found A Temporary Floor After Hitting New Multi-Month Lows Wednesday

Energy prices found a temporary floor after hitting new multi-month lows Wednesday morning as a rally to record highs in US equity markets and a modestly bullish DOE report both seemed to encourage buyers to step back into the ring.

RBOB and ULSD futures both bounced more than 6 cents off of their morning lows, following a CPI report that eased inflation fears and boosted hopes for the stock market’s obsession of the FED cutting interest rates. Even though the correlation between energy prices and equities and currencies has been weak lately, the spillover effect on the bidding was clear from the timing of the moves Wednesday.

The DOE’s weekly report seemed to add to the optimism seen in equity markets as healthy increases in the government’s demand estimates kept product inventories from building despite increased refinery runs.

PADD 3 diesel stocks dropped after large increases in each of the past 3 weeks pushed inventories from the low end of their seasonal range to average levels. PADD 2 inventories remain well above average which helps explain the slump in mid-continent basis values over the past week. Diesel demand showed a nice recovery on the week and would actually be above the 5 year average if the 5% or so of US consumption that’s transitioned to RD was included in these figures.

Gasoline inventories are following typical seasonal patterns except on the West Coast where a surge in imports helped inventories recover for a 3rd straight week following April’s big basis rally.

Refiners for the most part are also following the seasonal script, ramping up output as we approach the peak driving demand season which unofficially kicks off in 10 days. PADD 2 refiners didn’t seem to be learning any lessons from last year’s basis collapse and rapidly increased run rates last week, which is another contributor to the weakness in midwestern cash markets. One difference this year for PADD 2 refiners is the new Transmountain pipeline system has eroded some of their buying advantage for Canadian crude grades, although those spreads so far haven’t shrunk as much as some had feared.

Meanwhile, wildfires are threatening Canada’s largest oil sands hub Ft. McMurray Alberta, and more than 6,000 people have been forced to evacuate the area. So far no production disruptions have been reported, but you may recall that fires in this region shut in more than 1 million barrels/day of production in 2016, which helped oil prices recover from their slump below $30/barrel.

California’s Air Resources Board announced it was indefinitely delaying its latest California Carbon Allowance (CCA) auction – in the middle of the auction - due to technical difficulties, with no word yet from the agency when bidders’ security payments will be returned, which is pretty much a nice microcosm for the entire Cap & Trade program those credits enable.

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