Major Escalation In Middle Eastern Tensions Seems To Be Outweighing The Bearish Inventory Data

Market TalkThursday, Jan 11 2024
Pivotal Week For Price Action

Energy futures are off to another strong start Thursday, as a major escalation in Middle Eastern tensions seems to be outweighing the bearish inventory data that sent prices tumbling on Wednesday.

Today is the 8th trading session of the new year, and the Red Green pattern for ULSD continues to hold with each day so far bringing an alternating result. We thought the pattern was breaking Wednesday when ULSD started out with big early gains after a strong Tuesday showing, but the nickel rally turned into nickel losses following a bearish DOE report that showed swelling US inventories despite lower refinery runs.

Despite the 10-cent reversal lower Wednesday, ULSD managed a higher high and higher low on its daily bar chart, keeping the technical door open for it to continue higher (just like we’re seeing this morning) and ultimately completing the short-term W pattern by hitting at least $2.80, with a strong argument that we could make a run at the $3 mark in the next few weeks.

Iranian forces seized an oil tanker off the coast of Oman overnight, which brings the Strait of Hormuz into the spreading violence in the region and will most likely force a larger US naval presence to keep products flowing.

Here’s the catch: This tanker wasn’t a random ship moving through the world’s busiest oil transport lane, it’s a ship that was at the center of a US/Iran dispute over sanctioned oil last year. It’s unclear whether or not the ship was specifically targeted for that reason, or if it was just an unhappy coincidence for the operators. What is clear is that the ship has been moved into Iranian waters this morning, which is sure to raise tensions in the region.

This latest attack happened just about a hundred miles to the south and east of the Strait of Hormuz, which is the oil market’s busiest chokepoint. Given the long term issues with the Panama Canal’s lack of water (which doesn’t have a short term solution), the Suez Canal being avoided by many due to the Houthi Attacks in the Red Sea, and now this latest attack, 3 of the world’s 4 busiest shipping lanes are now embroiled in some fashion, and the 4th seems like it could be vulnerable if China decides the distractions elsewhere in the world make this an ideal time to take it’s shot at conquering its neighbors.

The bearish DOE figures overshadowed the shutdown of Delta/Monroe’s PA refinery due to storm-related power outages that caused immediate product allocations across the region and many suppliers to make double digit price increases during the morning hours.  Meanwhile, the P66 Bayway refinery is still recovering after an upset last week, which would probably be more problematic for consumers in the region if the weather wasn’t also significantly hampering demand. 

The DOE has made no secret that it’s been struggling with its weekly petroleum accounting, making changes to its processes last year to try and improve the accuracy of its reports.  Those efforts have been largely focused on oil figures, but this past week suggests there may be some challenges in the refined product space as well. The DOE claims that refiners reduced run rates, and that refined product demand recovered sharply after the Holiday Hangover, and yet both gasoline and diesel saw a 2nd straight week of huge inventory builds.   Import/Export flows can’t explain the difference, so we may have to chalk this up to either another accounting glitch, or perhaps the reality that the data provided the prior 2 Friday’s (when refiners and terminal operators have to submit their data) were both go-home-early days and the numbers reported may not have been the most accurate.

Despite the collapse in gasoline margins over the past few months, and the slowdown last week, US refiners are producing more to start the year since we’ve seen since the start of COVID. That output is pushing total US inventories to multi-year highs, but the distribution of those stocks varies greatly across the country. Most notably, the middle of the country is facing a glut of supply, while coastal markets are still holding below average thanks to their exporting capabilities. East Coast diesel continues to look the most vulnerable to a supply disruption with inventories continuing to sit on the bottom end of their seasonal range despite the recent builds, while West Coast inventories continue to be understated due to the lack of reporting on Renewable Diesel in the weekly stats. 

A deal made in Dallas. Sunoco is selling 200 convenience stores to 7-11 for $1 billion. The proceeds of that sale are apparently being used by Sunoco to increase their European terminal footprint in an effort to diversify their supply options on the East Coast.

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

Market Talk Update 1.11.2024

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Market TalkFriday, Jul 19 2024

Summertime-Friday-Apathy Trade Influencing Energy Markets

Energy markets are treading water to start the day as the Summertime-Friday-Apathy trade seems to be influencing markets around the world in the early going. RBOB futures are trying for a 3rd straight day of gains to wipe out the losses we saw to start the week, while ULSD futures continue to look like the weak link, trading lower for a 2nd day and down nearly 3 cents for the week.

Bad to worse: Exxon’s Joliet refinery remains offline with reports that repairs may take through the end of the month. On top of that long delay in restoring power to the facility, ENT reported this morning that the facility has leaked hydrogen fluoride acid gas, which is a dangerous and controversial chemical used in alkylation units. Chicago basis values continue to rally because of the extended downtime, with RBOB differentials approaching a 50-cent premium to futures, which sets wholesale prices just below the $3 mark, while ULSD has gone from the weakest in the country a month ago to the strongest today. In a sign of how soft the diesel market is over most of the US, however, the premium commanded in a distressed market is still only 2 cents above prompt futures.

The 135mb Calcasieu Refinery near Lake Charles LA has been taken offline this morning after a nearby power substation went out, and early reports suggest repairs will take about a week. There is no word yet if that power substation issue has any impacts on the nearby Citgo Lake Charles or P66 Westlake refineries.

Two tanker ships collided and caught fire off the coast of Singapore this morning. One ship was a VLCC which is the largest tanker in the world capable of carrying around 2 million barrels. The other was a smaller ship carrying “only” 300,000 barrels (roughly 12 million gallons) of naphtha. The area is known for vessels in the “dark fleet” swapping products offshore to avoid sanctions, so a collision isn’t too surprising as the vessels regularly come alongside one another, and this shouldn’t disrupt other ships from transiting the area.

That’s (not) a surprise: European auditors have determined the bloc’s green hydrogen goals are unattainable despite billions of dollars of investment, and are based on “political will” rather than analysis. Also (not) surprising, the ambitious plans to build a “next-gen” hydrogen-powered refinery near Tulsa have been delayed.

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

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Market TalkThursday, Jul 18 2024

Refined Products Stanch Bleeding Despite Inventory Builds And Demand Slump

Refined products are trading slightly lower to start Thursday after they stopped the bleeding in Wednesday’s session, bouncing more than 2 cents on the day for both RBOB and ULSD, despite healthy inventory builds reported by the DOE along with a large slump in gasoline demand.

Refinery runs are still above average across the board but were pulled in PADD 3 due to the short-term impacts of Beryl. The Gulf Coast region is still outpacing the previous two years and sitting at the top end of its 5-year range as refiners in the region play an interesting game of chicken with margins, betting that someone else’s facility will end up being forced to cut rates before theirs.

Speaking of which, Exxon Joliet was reportedly still offline for a 3rd straight day following weekend thunderstorms that disrupted power to the area. Chicago RBOB basis jumped by another dime during Wednesday’s session as a result of that downtime. Still, that move is fairly pedestrian (so far) in comparison to some of the wild swings we’ve come to expect from the Windy City. IIR via Reuters reports that the facility will be offline for a week.

LA CARBOB differentials are moving in the opposite direction meanwhile as some unlucky seller(s) appear to be stuck long and wrong as gasoline stocks in PADD 5 reach their highest level since February, and held above the 5-year seasonal range for a 4th consecutive week. The 30-cent discount to August RBOB marks the biggest discount to futures since 2022.

The EIA Wednesday also highlighted its forecast for rapid growth in “Other” biofuels production like SAF and Renewable Naptha and Propane, as those producers capable of making SAF instead of RD can add an additional $.75/gallon of federal credits when the Clean Fuels Producer’s Credit takes hold next year. The agency doesn’t break out the products between the various “Other” renewable fuels, but the total projected output of 50 mb/day would amount to roughly 2% of total Jet Fuel production if it was all turned to SAF, which of course it won’t as the other products come along for the ride similar to traditional refining processes.

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

Pivotal Week For Price Action