Energy Futures Are Trading Lower To Start Monday’s Holiday-Shortened Trading Session

Market TalkMonday, Jan 15 2024
Pivotal Week For Price Action

Energy futures are trading lower to start Monday’s holiday-shortened trading session, adding to the bearish action we saw Friday when huge morning gains turned into afternoon losses. Reminder that futures are trading in an abbreviated session today, but there will not be a settlement today and spot markets are not being assessed. 

ULSD prices continue to be the most volatile in the complex, plunging 17 cents since topping out Friday morning. That sharp pullback leaves diesel futures in the middle of their winter trading range, and set for more choppy back and forth action.

RBOB gasoline futures have dropped more than a dime from Friday’s high, and are also looking neutral on the charts with a break above $2.20 or below $2 needed to provide some direction.

The US struck another Houthi target in Yemen Friday, and a fighter jet downed a missile aimed at one of the Naval destroyers in the region, but those events don’t seem to be enough to get buyers interested. 

As suspected, the refineries around the Texas Panhandle were all impacted by the severe weather with Valero Mckee, P66 Borger and Delek Big Spring all reporting operational upsets to the TCEQ over the weekend.  

In addition, Valero and Flint Hills both reported upsets at their Corpus Christi refineries but it’s not clear if those events were weather related and so far it appears that the rest of the Gulf Coast refiners haven’t been impacted. The real test for refinery row will come overnight tonight as lows in the Houston area are expected to drop to around 23 degrees which will stress equipment and the grid. The cold isn’t expected to last long however, so widespread supply disruptions still seem unlikely at this point.

Besides the refinery hiccups which appear relatively minor so far, there were numerous notices of terminal outages or restrictions due to the sub-zero temperatures stretching across so much of the country, but with many drivers staying off the roads due to the weather and the holiday, these events don’t seem too disruptive so far. The net impacts will take another day or two to assess, and with most traders taking today off since spot markets aren’t being assessed, we’ll have to wait until tomorrow to see the reaction in cash markets.

The Chevron Richmond refinery near San Francisco reported a 3rd upset in as many weeks Saturday. So far each of the events have had minimal impact on operations or regional prices, and the company said it expected no offsite impacts.

Short covering was the theme of the week in the CFTC’s Commitment of Traders report.  Money managers liquidated more than 29,000 crude oil contracts that had been betting on lower prices and added more than 29,000 new long positions in Brent, which largely offset the bets made the prior week. The big swings in large speculative money moving in and out of the energy space appear to be contributing to the knee-jerk price reactions over the events in the Red Sea and may help explain why the price rallies have been so fickle lately.

Baker Hughes reported a decline of 2 oil rigs and 1 natural gas rigs in the US last week, with the Permian basin accounting for the entire drop.  

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Market Talk Update 1.15.24

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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