Energy Futures Are Attempting To Rally To Start The Week

Market TalkMonday, Jul 25 2022
Pivotal Week For Price Action

Energy futures are attempting to rally to start the week, after surviving a test of the low end of their July trading range. Both RBOB and ULSD futures had moments in the past few days of looking like they’d break down on the charts and spark another big wave of selling, but both contracts managed to find enough buying to keep them in a sideways pattern for a while longer.

It’s not just gasoline futures that have been dealing with heavy selling in July. Most regional basis values in the US have dropped 20 cents or more since the July 4th holiday, suggesting that the demand slowdown is not just a theoretical issue anymore.  Severe backwardation in the futures market also seems to be contributing to the negative values in prompt basis, as prices will drop 20 cents or more once the September RBOB contract takes the pole position, incenting sellers to discount barrels to the August contract while they can, and taking a big bite out of refinery margins that hit record highs in the past few months.

Baker Hughes reported that the US oil rig count held steady last week, while the natural gas rig count increased by 2. With supply & labor bottlenecks keeping the pace of drilling relatively subdued compared to previous booms in the energy market cycle, the global thirst for US natural gas may suddenly be influencing the amount of oil production as drillers have to compete for workers and other assets. The Dallas FED predicts that Texas Job growth will hold north of 4% this year after surging north of 7% in June, with new well permits and other energy related activities a key indicator of strong job growth continuing in the state.

The EIA reported this morning that the US became the world’s largest LNG exporter this year, as new capacity came online at the (only) 7 facilities in the country equipped to freeze and ship natural gas overseas. US natural gas prices have surged from $5.50 July 5th to $8.50 this morning, with the record setting heatwave hitting large parts of the country getting the blame. Those prices are still less than a third of what European and Asian spot markets are trading at, which will most likely keep the export demand high for years to come.

Money managers seem to be getting more comfortable betting on higher petroleum prices, increasing their net length across the board for a 2nd week. European grades are seeing the most activity, with Brent net length held by large speculators increasing by almost 50% last week alone, while Gasoil contracts increased by 37% on the week. Open interest remains near 5 year lows, so if the big money funds continue to pour money into these contracts, it could have a larger influence on prices than when liquidity is higher.

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

Market Talk Update 7.25.22

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Pivotal Week For Price Action
Market TalkThursday, Mar 28 2024

Energy Markets Are Ticking Modestly Higher Heading Into The Easter Weekend With Crude Oil Prices Leading The Way Up About $1.25/Barrel Early Thursday Morning

Energy markets are ticking modestly higher heading into the Easter Weekend with crude oil prices leading the way up about $1.25/barrel early Thursday morning, while gasoline prices are up around 2.5 cents and ULSD futures are about a penny.

Today is the last trading day for April HO and RBOB futures, an unusually early expiration due to the month ending on a holiday weekend. None of the pricing agencies will be active tomorrow since the NYMEX and ICE contracts are completely shut, so most rack prices published tonight will carry through Monday.

Gasoline inventories broke from tradition and snapped a 7 week decline as Gulf Coast supplies increased, more than offsetting the declines in PADDs 1, 2 and 5. With gulf coast refiners returning from maintenance and cranking out summer grade gasoline, the race is now officially on to move their excess through the rest of the country before the terminal and retail deadlines in the next two months. While PADD 3 run rates recover, PADD 2 is expected to see rates decline in the coming weeks with 2 Chicago-area refineries scheduled for planned maintenance, just a couple of weeks after BP returned from 7 weeks of unplanned repairs.

Although terminal supplies appear to be ample around the Baltimore area, we have seen linespace values for shipping gasoline on Colonial tick higher in the wake of the tragic bridge collapse as some traders seem to be making a small bet that the lack of supplemental barge resupply may keep inventories tight until the barge traffic can move once again. The only notable threat to refined product supplies is from ethanol barge traffic which will need to be replaced by truck and rail options, but so far that doesn’t seem to be impacting availability at the rack. Colonial did announce that they would delay the closure of its underutilized Baltimore north line segment that was scheduled for April 1 to May 1 out of an “abundance of caution”.

Ethanol inventories reached a 1-year high last week as output continues to hold above the seasonal range as ethanol distillers seem to be betting that expanded use of E15 blends will be enough to offset sluggish gasoline demand. A Bloomberg article this morning also highlights why soybeans are beginning to displace corn in the subsidized food to fuel race.

Flint Hills reported a Tuesday fire at its Corpus Christi West facility Wednesday, although it’s unclear if that event will have a material impact on output after an FCC unit was “stabilized” during the fire. While that facility isn’t connected to Colonial, and thus doesn’t tend to have an impact on USGC spot pricing, it is a key supplier to the San Antonio, Austin and DFW markets, so any downtime may be felt at those racks.

Meanwhile, P66 reported ongoing flaring at its Borger TX refinery due to an unknown cause. That facility narrowly avoided the worst wildfires in state history a few weeks ago but is one of the frequent fliers on the TCEQ program with upsets fairly common in recent years.

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
Pivotal Week For Price Action
Market TalkWednesday, Mar 27 2024

Most Energy Contracts Are Ticking Lower For A 2nd Day After A Trickle Of Selling Picked Up Steam Tuesday

Most energy contracts are ticking lower for a 2nd day after a trickle of selling picked up steam Tuesday. ULSD futures are down a dime from Monday’s highs and RBOB futures are down 7 cents.

Diesel prices continue to look like the weak link in the energy chain, with futures coming within 1 point of their March lows overnight, setting up a test of the December lows around $2.48 if that resistance breaks down. Despite yesterday’s slide, RBOB futures still look bullish on the weekly charts, with a run towards the $3 mark still looking like a strong possibility in the next month or so.

The API reported crude stocks increased by more than 9 million barrels last week, while distillates were up 531,000 and gasoline stocks continued their seasonal decline falling by 4.4 million barrels. The DOE’s weekly report is due out at its normal time this morning.

RIN values have recovered to their highest levels in 2 months around $.59/RIN for D4 and D6 RINs, even though the recovery rally in corn and soybean prices that had helped lift prices off of the 4 year lows set in February has stalled out. Expectations for more biofuel production to be shut in due to weak economics with lower subsidy values seems to be encouraging the tick higher in recent weeks, although prices are still about $1/RIN lower than this time last year.

Reminder that Friday is one of only 3 annual holidays in which the Nymex is completely shut, so no prices will be published, but it’s not a federal holiday in the US so banks will be open.

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