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.

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Market Talk Update 11.21.2023

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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.