Energy Futures Are Moving Lower For A Third Straight Day
Energy futures are moving lower for a 3rd straight day, setting up a pivotal test of chart support to end the week, after the December recovery rally failed to break the downward sloping trend-lines.
Volatility indices are showing that fear is creeping back into financial markets after calming in the 2 weeks after the Black Friday meltdown. This time it’s inflation and the FED’s reaction to it that appear to have both equity and energy markets on edge as record price increases seem to be forcing the central bank to act more aggressively to reduce their money printing programs than previously expected. Tapering bond purchases, shrinking the FED’s balance sheet, and then raising interest rates are the foreshadowed plan, the trillion dollar question is whether or not executing that plan will spark another recession.
Want to see an example of how the market reacted to yesterday’s record Producer Price Index increase? The CME’s fedwatch tool showed the probability of an interest rate increase by March at just 19% a month ago, and 33% yesterday prior to the PPI, and today that probability has jumped to 39%. Fed Fund futures are also suggesting a 60% probability that we’ll see at least 3 rate increases in 2022.
The API reported small builds in refined products of 426k barrels of gasoline and 1 million barrels for diesel, while crude stocks had a small decline of around 815k barrels. That news seemed to be largely ignored with the FED in focus, and it’s possible we may see a similar lack of reaction to today’s DOE weekly report. Oil production and Refinery Runs will be two numbers to watch in this morning’s report as the country and much of the world seem to be moving rapidly from supply shortages to excess.
Speaking of which, Chinese refinery runs increased sharply in November, echoing the estimates from both OPEC and the IEA earlier this week, which serves to both relieve the supply crunch that was tormenting the country for several months, and to put more downward pressure on margins world-wide.
Want to see the most dramatic example of a market healing rapidly in December? Take a look at Phoenix diesel which has dropped more than $1/gallon in 2 weeks.
Click here to download a PDF of today's TACenergy Market Talk.
Latest Posts
Wholesale Gasoline Prices Across Most Of The US Reached Their Lowest Levels In 2-Years Thursday
West Coast Gasoline Inventories Dropped Sharply Last Week And Are Now Holding Below Their 5-year Seasonal Range
Week 49 - US DOE Inventory Recap
Saudi Arabia Lowered Its Official Prices To Asian Customers Tuesday, The First Price Cut In 7-Months
Social Media
News & Views
View All
Wholesale Gasoline Prices Across Most Of The US Reached Their Lowest Levels In 2-Years Thursday
Wholesale gasoline prices across most of the US reached their lowest levels in 2-years Thursday, after the morning recovery rally fizzled in the afternoon. RBOB gasoline futures dipped below the $2 mark briefly, before settling just above it, while cash prices in several major markets dropped below $1.80 for the first time since December 2021, while crude oil and diesel prices reached fresh 6-month lows.
The bulls are giving it another go this morning, pushing futures up 5-cents for gasoline and 6- cents for diesel, trying to snap the streak of 6-straight daily losses for ULSD, although we’ll need to see products double their early gains to erase the weekly decline.
Energy prices didn’t react much initially to the November Payroll report that estimated 199,000 jobs were added during the month, while the official unemployment rate dipped to 3.7% from 3.9% and the U-6 rate dropped to 7% from 7.2%. Equity futures moved modestly lower immediately following that report as labor market resilience throws cold water on recent hopes for interest rate cuts, but as has often been the case for several months now, energy prices are managing to shrug off the move in stocks.
Big negative basis values continue to be the theme across the Gulf Coast and Mid-Continent, with USGC, Group 3 and Chicago all trading at 20+ cent discounts to futures for both gasoline and diesel. Those negative values are weighing on refining margins with USGC crack spreads approaching their lowest levels in 2 years, which will almost certainly curtail some refinery run rates through the winter months. East Coast refiners meanwhile are finding themselves in a strong position as shipping bottlenecks keep PADD 1 inventories low and their crack spreads remain in the mid $20/barrel range despite the recent pull back in futures.
The long-awaited Dangote refinery is reportedly receiving its first cargo of crude oil today. That new 650mb/day refinery would be the world’s largest single train refinery, but is already years behind schedule, and many still doubt its ability to run anywhere near capacity. We’ve already seen the impact Kuwait’s 615mb/day Al Zour refinery can have on markets across the Atlantic basin, so whether or not the Nigerian facility can ramp up run rates could have a major influence on product prices next year.
Click here to download a PDF of today's TACenergy Market Talk.
West Coast Gasoline Inventories Dropped Sharply Last Week And Are Now Holding Below Their 5-year Seasonal Range
Energy futures are bouncing this morning as buyers are finally stepping in after RBOB futures touched a 2-year low Wednesday, while WTI and ULSD both hit their lowest levels in 5 months. There are headwinds both fundamentally and technically, but so far, the market isn’t acting like a collapse is imminent and as the table below shows this is right about the time when gasoline prices bottomed out the past two years.
Saudi Arabia and Russia released a joint statement this morning, following Vladimir Putin’s trip to the Kingdom, urging OPEC & friends to join their output cut agreement, which takes the risk of a price war that could send prices plunging (as we’ve seen twice in the past decade) off the table for now and seems to be contributing to WTI climbing back above the $70 mark and Brent getting back above $75.
The DOE reported a healthy bounce back in fuel demand estimates after the annual Thanksgiving holiday hangover, but that wasn’t enough to prevent refined product inventories from continuing to build as refiners continue to return from maintenance and increase run rates. The builds in gasoline inventories particularly suggest it could be a tough winter for some refiners who are already having some challenges clearing their extra barrels.
The exception on gasoline comes in PADD 5. West Coast gasoline inventories dropped sharply last week and are now holding below their 5-year seasonal range, which is dramatically lower than year-ago levels which set the top end of that range. Those tight stocks help explain why West Coast values are the most expensive in the country by a wide margin and leave little cushion to deal with unplanned maintenance which helps explain the jump in CARBOB basis values this week.
On the diesel side of the barrel, the recent themes of tight supplies on the East Coast, ample supply in the Midwest and Gulf Coast, and a Wild Card on the west coast since we don’t see Renewable Diesel inventories in the weekly figures continues. Take a look at the PADD 2 gasoline and diesel charts below and it’s easy to understand why we’re seeing cash prices in both Group 3 and Chicago approaching multi-year lows with 20-30 cent discounts to futures becoming the rule rather than the exception.
The market seemed to shrug off the drop in total US crude oil stocks, as Cushing OK stocks increased for a 7th straight week, and the decline was largely driven by the largest negative adjustment value on record, which went from a positive 1.2 million barrels/day last week to negative 1.4 million barrels/day this week. The EIA has done a lot of work trying to fix the bugs in its report system and to better define what exactly it’s reporting, but clearly there’s still more work to be done.