Energy Futures Are Bouncing Back This Morning After Their Biggest Daily Drop Since Black Friday

Market TalkWednesday, Feb 16 2022
Pivotal Week For Price Action

Energy futures are bouncing back this morning after their biggest daily drop since Black Friday as a debate over troop counts, inventory declines and a presidential warning all seem to be encouraging buyers this morning. Equity markets continue to struggle with another troubling inflation report and a flattening yield curve both signaling to many that there may be more economic pain ahead.

As the forward curve charts show, despite the big selloff Tuesday, not much has changed from a week ago. From a chart perspective, the weekly bullish trends are still holding, but there’s no longer much room to spare to the downside if the bulls are going to regain control this week.

While NATO and Russia continue to disagree on just about everything, including whether there are more or less troops surrounding Ukraine, the US President warned that the sanctions planned if Russia does invade will target energy exports, which will likely push prices higher. Given that petroleum prices have already risen 40% or more in the past 2 months (see the PPI inflation note above) the question then becomes whether or not that’s already priced in, and anything less will become a reason to sell in the near future. 

The API reported small inventory draws across the board last week. If the DOE confirms that estimate, it will provide more validation for the backwardation we’re seeing in the forward curves as most US markets outside of the Midwest are tighter on days of supply than they typically are this time of year, setting the stage for more product allocations and outages as demand ramps up this spring. 

Speaking of outages:  Another winter storm is sweeping the country, and is expected to bring severe thunderstorms with it. Unlike the last 3 storms however, it’s not expected to bring the cold snap, snow and ice to parts of the south that disrupted both refinery operations and travel. While overnight temperatures will dip below freezing for most of Southeast, day time tempts will still be pushing mid 50s which should help limit the surge in electricity demand that might hamper a diesel supply network that’s been caught flat footed this winter. That sigh of relief seems to help explain why the March HO contract went negative in the past few minutes after being up 4 cents overnight, while the rest of the complex is holding onto gains.

The relatively tight gasoline markets should make the spring RVP transition a bit easier for inventory holders, and may limit the amount of price dumping that often happens as the deadlines loom. The refiners that survived the COVID crisis look to be in a great position now as crack spreads have rebounded nicely and the forward curve shows them staying in positive territory for the next few years.

The EIA continues to predict that US oil production will hit record highs this year and next, even though the weekly stats have yet to show much increase in output so far this year. The Permian basin is expected to account for 6 out of every 7 new barrels of oil produced in the country this year according to the report, while other basins will take on more of the burden next year.  

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

Market Talk Update 02.16.22

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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.