Energy Futures Are Seeing A Modest Pullback This Morning After 2 Strong Days Of Gains

Market TalkTuesday, Nov 21 2023
Pivotal Week For Price Action

Energy futures are seeing a modest pullback this morning after 2 strong days of gains. The buying spree seemed to stall out Monday afternoon, and left ULSD and RBOB futures hovering near their weekly trend-lines, but so far lacking the conviction to make a break-out to the upside and put an end to the bearish patterns that have been in place since the summer. 

Many headlines are suggesting the reason for the recent recovery is expectations that OPEC and Friends will extend their output cuts at their meeting on Sunday. The IEA this morning suggested that even if the cartel extends cuts, the world is likely to still see a supply surplus next year. 

More than a million gallons of crude oil appears to have leaked from an off-shore oil pipeline roughly 25 miles off the Louisiana coast before operators shut down the pipe last Friday. So far the cause of the leak, and the exact amount spilled, is unknown, but at least the oil slick is not moving towards shore at this point. The pipeline in question moves roughly 80mb/day of crude oil, and given the variety of options in the region, this shutdown should not cause major supply disruptions for refiners nearby.

Meanwhile, a cargo ship was hijacked in the Red Sea, by Yemen’s Houthi rebel group, who said they took the ship due to connections to Israel, and would continue targeting ships in international waters until the war in Gaza ends. Despite the links between Iran, Hamas and the Houthi’s, and previous attacks on oil tankers by Iranian forces, so far there have been no apparent concerns that oil supplies may be impacted by these events. The US already has several naval ships in the area to protect the shipping routes and has downed several Houthi missiles since the war broke out, so it seems like the market is satisfied they can keep things from getting too out of hand.

That route plays a key role in European fuel supplies from the Middle East, which have seen a sharp increase since the Ukrainian war, and the startup of Kuwait’s new Al Zour refinery last year. That refinery has run into trouble in the past month however, headlines regarding its progress seem to be having some influence on the daily moves in ULSD futures. While the status of the refinery’s current operations are unclear, a weekend note from an analyst urging that the state oil firm take over control of the facility suggests a lack of confidence in its current ability to remain a stable supplier.

Chinese exports to Europe have dropped this year after setting records last winter, so it seems as though there’s some flex capacity available on the global markets, IF the government quotas allow for it to be sent overseas.

Opposite day:  After a weekend fire at the Martinez Renewable Diesel refinery, diesel basis values in the San Francisco market plunged more than 20 cents/gallon Monday, far outpacing a recent slump in the neighboring LA spot market. 

That’s not the only RD producer facing challenges these days.  A month after a judge halted construction on the P66 Rodeo refinery conversion project (which may ironically force traditional refining operations to continue for longer than planned) a Southern California facility looks like it may be running into a legal wall that could halt its expansion plans.  Add these legal challenges to the big drop in credit values and Panama Canal issues and the outlook for rapid growth in the renewables arena is looking pretty rough near term.

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

Market Talk Update 11.21.2023

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Market TalkFriday, May 17 2024

The Recovery Rally In Energy Markets Continues For A 3rd Day

The recovery rally in energy markets continues for a 3rd day with refined product futures both up more than a dime off of the multi-month lows we saw Wednesday morning. The DJIA broke 40,000 for the first time ever Thursday, and while it pulled back yesterday, US equity futures are suggesting the market will open north of that mark this morning, adding to the sends of optimism in the market.

Despite the bounce in the back half of the week, the weekly charts for both RBOB and ULSD are still painting a bearish outlook with a lower high and lower low set this week unless the early rally this morning can pick up steam in the afternoon. It does seem like the cycle of liquidation from hedge funds has ended however, so it would appear to be less likely that we’ll see another test of technical support near term after this bounce.

Ukraine hit another Russian refinery with a drone strike overnight, sparking a fire at Rosneft’s 240mb/day Tuapse facility on the black sea. That plant was one of the first to be struck by Ukrainian drones back in January and had just completed repairs from that strike in April. The attack was just one part of the largest drone attack to date on Russian energy infrastructure overnight, with more than 100 drones targeting power plants, fuel terminals and two different ports on the Black Sea. I guess that means Ukraine continues to politely ignore the White House request to stop blowing up energy infrastructure in Russia.

Elsewhere in the world where lots of things are being blown up: Several reports of a drone attack in Israel’s largest refining complex (just under 200kbd) made the rounds Thursday, although it remains unclear how much of that is propaganda by the attackers and if any impact was made on production.

The LA market had 2 different refinery upsets Thursday. Marathon reported an upset at the Carson section of its Los Angeles refinery in the morning (the Carson facility was combined with the Wilmington refinery in 2019 and now reports as a single unit to the state, but separately to the AQMD) and Chevron noted a “planned” flaring event Thursday afternoon. Diesel basis values in the region jumped 6 cents during the day. Chicago diesel basis also staged a recovery rally after differentials dropped past a 30 cent discount to futures earlier in the week, pushing wholesale values briefly below $2.10/gallon.

So far there haven’t been any reports of refinery disruptions from the severe weather than swept across the Houston area Thursday. Valero did report a weather-related upset at its Mckee refinery in the TX panhandle, although it appears they avoided having to take any units offline due to that event.

The Panama Canal Authority announced it was increasing its daily ship transit level to 31 from 24 as water levels in the region have recovered following more than a year of restrictions. That’s still lower than the 39 ships/day rate at the peak in 2021, but far better than the low of 18 ships per day that choked transit last year.

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

Pivotal Week For Price Action
Market TalkThursday, May 16 2024

Energy Prices Found A Temporary Floor After Hitting New Multi-Month Lows Wednesday

Energy prices found a temporary floor after hitting new multi-month lows Wednesday morning as a rally to record highs in US equity markets and a modestly bullish DOE report both seemed to encourage buyers to step back into the ring.

RBOB and ULSD futures both bounced more than 6 cents off of their morning lows, following a CPI report that eased inflation fears and boosted hopes for the stock market’s obsession of the FED cutting interest rates. Even though the correlation between energy prices and equities and currencies has been weak lately, the spillover effect on the bidding was clear from the timing of the moves Wednesday.

The DOE’s weekly report seemed to add to the optimism seen in equity markets as healthy increases in the government’s demand estimates kept product inventories from building despite increased refinery runs.

PADD 3 diesel stocks dropped after large increases in each of the past 3 weeks pushed inventories from the low end of their seasonal range to average levels. PADD 2 inventories remain well above average which helps explain the slump in mid-continent basis values over the past week. Diesel demand showed a nice recovery on the week and would actually be above the 5 year average if the 5% or so of US consumption that’s transitioned to RD was included in these figures.

Gasoline inventories are following typical seasonal patterns except on the West Coast where a surge in imports helped inventories recover for a 3rd straight week following April’s big basis rally.

Refiners for the most part are also following the seasonal script, ramping up output as we approach the peak driving demand season which unofficially kicks off in 10 days. PADD 2 refiners didn’t seem to be learning any lessons from last year’s basis collapse and rapidly increased run rates last week, which is another contributor to the weakness in midwestern cash markets. One difference this year for PADD 2 refiners is the new Transmountain pipeline system has eroded some of their buying advantage for Canadian crude grades, although those spreads so far haven’t shrunk as much as some had feared.

Meanwhile, wildfires are threatening Canada’s largest oil sands hub Ft. McMurray Alberta, and more than 6,000 people have been forced to evacuate the area. So far no production disruptions have been reported, but you may recall that fires in this region shut in more than 1 million barrels/day of production in 2016, which helped oil prices recover from their slump below $30/barrel.

California’s Air Resources Board announced it was indefinitely delaying its latest California Carbon Allowance (CCA) auction – in the middle of the auction - due to technical difficulties, with no word yet from the agency when bidders’ security payments will be returned, which is pretty much a nice microcosm for the entire Cap & Trade program those credits enable.

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