Energy Futures Are Seeing A Modest Move Higher Tuesday After Mixed Results In Mondays Session

Market TalkTuesday, Dec 20 2022
Pivotal Week For Price Action

Energy futures are seeing a modest move higher Tuesday after mixed results in Mondays session. COVID in Chinacentral bank action and Europe’s reaction to its energy crisis continue to be major market themes, but are having less impact on prices daily as traders turn their focus to last minute shopping and expiring PTO rather than last minute supply needs and expiring futures contracts.

From a technical perspective prices have moved into a more neutral ground, which may mean an extended period of choppy sideways trading. ULSD is probably the best example, trading about 30 cents above its December lows from 2 weeks ago, but 25 cents below the highs set last Thursday. That leaves a range of more than 50 cents/gallon for prices to swing without threatening a change in any trends. RBOB gasoline is in a similar neutral zone with a high of $2.25 or low of $2.00 needing to be taken out before a trend can form.

Diesel prices dropped sharply from their overnight highs Monday after European nations agreed to a price cap on natural gas, which some believe will make switching from gas to oil for electricity needs less likely near term. Others meanwhile think this price cap will prevent the continent from outbidding Asian countries for LNG shipments, which could actually lower supplies of natural gas, and runs the risk of needing more supplemental supply options during peak demand. At the very least this will become an interesting case study in economics and the law of unintended consequences when governments intervene in markets, and hopefully for those struggling to heat their homes it’s not much more than that.

The Freeport LNG facility was reportedly receiving gas shipments again for the first time in 4 months after a June fire forced most operations to close.  It’s unclear at this point whether that means one of the country’s largest LNG export facilities would be resuming full operations despite new hurdles put in place by the FERC earlier in the month, or if the plant was simply cranking up a power plant to help the Texas power grid deal with the deep freeze forecast for later in the week. 

Speaking of which, the refinery zones along the Gulf Coast are forecast to get temperatures well below freezing Thursday and Friday, along with wind gusts approaching 50 miles per hour, so there’s a good chance of power disruptions or other damage being done to facilities that aren’t used to dealing with the cold temperatures. A big unknown is how these facilities may have changed their operations to deal with just such an event after the 2021 freeze, which caused the biggest disruption in refining operations on record (see the chart below). It seems unlikely they’ll be caught by surprise this time around, and fortunately the forecast suggest these temps will only last a couple of days, which should help minimize the impact.

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Market Talk Update 12.20.22

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Pivotal Week For Price Action
Pivotal Week For Price Action
Market TalkWednesday, Jul 17 2024

Energy Markets Are Trying To Find A Price Floor After Gasoline And Crude Oil Staged A Healthy Bounce To Minimize The Heavy Losses

Energy markets are trying to find a price floor after gasoline and crude oil staged a healthy bounce to minimize the heavy losses we saw early in Tuesday’s session. WTI is leading the move higher early Wednesday, up nearly $.90/barrel in the early going, while RBOB prices are up just under a penny.

Diesel continues to look like the weak link in the energy chain both technically and fundamentally. Tuesday the API reported a 4.9 million barrel build in diesel stocks, while gasoline inventories were only up 365,000 barrels, and crude oil stocks declined by more than 4.4 million barrels. The DOE’s weekly report is due out at its normal time this morning and it’s likely we’ll see a reduction in oil output and PADD 3 refining runs thanks to shut ins ahead of Hurricane Beryl, but otherwise the storm appears to be a relative non-issue with only 1 notable refining hiccup, that wasn’t even as bad as a midwestern Thunderstorm.

Chicago basis values rallied Tuesday after reports that Exxon had shut down the 250mb/day Joliet refinery following severe storms that knocked out power to the area Sunday. RBOB differentials surged nearly 9 cents on the day, while diesel diffs jumped more than a nickel. With 3 large refineries in close proximity, the Chicago cash market is notoriously volatile if any of those facilities has an upset. Back in May there was a one-day spike in gasoline basis of more than 50 cents/gallon after Joliet had an operating upset so don’t be surprised if there are bigger swings this week if the facility doesn’t come back online quickly.

Moving in the opposite direction, California basis values are heading the opposite direction with the transition to August scheduling pressuring CARBOB differentials in LA and San Francisco to their biggest discounts to prompt RBOB futures in more than 18 months. Gasoline imports into PADD 5 have held well above average levels over the past 2 months, which has more than offset the loss of the P66 Rodeo refinery’s output after it completed its conversion to RD production, in another sign of how growing refining capacity in China and other Asian countries may become more influential to the US. California regulators may also pat themselves on the back that their new plans to force refineries to report their gross profit monthly, in addition to the rules requiring all bulk trades in the state be reported must be driving the lower gasoline differentials, assuming they figure out what a basis differential is.

Meanwhile, California’s Carbon Allowance values have tumbled to their lowest levels in a year after a CARB presentation last week suggested the agency would be delaying long-anticipated tightening of the Cap and Trade program until 2026.

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

Pivotal Week For Price Action
Market TalkTuesday, Jul 16 2024

The Sell-Off In Energy Markets Continues, With Refined Products Reaching Their Lowest Levels In A Month Early In Tuesday’s Session

The sell-off in energy markets continues, with refined products reaching their lowest levels in a month early in Tuesday’s session. Reports of slowing growth in China, the world’s largest oil purchaser, is getting much of the credit for the slide in prices so far this week, although that doesn’t do much to explain why refined products are outpacing the drop in crude.

ULSD futures are leading the early move lower, trading down a nickel on the day, and marking a 19 cent drop since July 4th. There’s not much in the way of technical support for ULSD, so don’t be surprised if this sell-off continues to pick up steam.

With today’s slide, RBOB futures are down 17 cents from where they were trading on July 4th, and are just a couple of cents from testing their 200-day moving average. Should that support break, it looks like there’s a good chance to test the June lows around $2.29.

Physical markets are not offering any strength to the futures market with all 6 of the major cash markets for diesel across the US trading at a discount to ULSD futures, while only 1 gasoline market is trading at a premium to RBOB futures. That combination of weakness in futures and cash markets is going to be troubling for refiners who are seeing margins reduce during what is traditionally a strong time of year.

The EIA highlighted the energy trade between the US and Mexico in a report Monday, showing that despite so many claims of energy independence from Mexican officials, the actual amount of refined fuels and natural gas bought from the US continues to increase. That’s good news for many US refiners who have become more dependent on Mexican purchases to find a home for their output.

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