Energy Futures Buck Sinking Equities, OVX Drops To Yearly Low

Market TalkWednesday, Feb 22 2023
Pivotal Week For Price Action

It’s a quiet start for energy markets Wednesday with gasoline and diesel prices hovering around break even for the day following a strong recovery rally in diesel prices Tuesday that earned back nearly half of last week’s heavy losses. 

Refined products continue to shrug off moves in equity markets, with a 2% drop in US stock indices doing little to slow the bounce in refined product prices Tuesday. It’s also worth noting that the oil volatility index (OVX) reached its lowest level since January of 2022 last week, even as stocks are seeing a tick higher in their volatility readings (VIX).

A new report suggests that European refinery runs reached their highest levels since the start of COVID in January, which no doubt played a role in the substantial pullback in crack spreads we’ve seen in the past several weeks. The big question now is whether or not those plants can maintain that level of run rate, or if it was a short-term acceleration in preparation for the Russian diesel embargo. Speaking of which, a Reuters report today highlights how traders continue to get creative with their boats to bypass sanctions. 

Freeport reported it had received regulatory approval to restart commercial activities at its LNG facility that has been offline for nearly 8 months due to a fire. That facility is the 2nd largest in the US, and accounted for more than 10% of export volumes, so should help alleviate some of the domestic glut of supplies that have pushed Natural gas futures below $2 for the first time since September of 2020.

California’s Air Resources Board (CARB) is holding a public workshop today to discuss potential regulation amendments. The slide deck published ahead of that meeting suggests the agency is pushing for a “step change” in carbon intensity targets to boost LCFS credit prices and “increase ambition for 2030”. LCFS values rallied to a 6 week high following that report, although they remain at just a fraction of the value we saw 2 years ago…which is why the agency seems to see the need to change target reduction levels to prop up those prices.  The slide deck also suggests the agency is looking to add intrastate Jet Fuel usage to the LCFS program, and phase out some forms of renewables, like RNG (aka biomethane).

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

Market Talk Update 02.22.2023

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Pivotal Week For Price Action
Market TalkThursday, Feb 29 2024

It's Another Mixed Start For Energy Futures This Morning After Refined Products Saw Some Heavy Selling Wednesday

It's another mixed start for energy futures this morning after refined products saw some heavy selling Wednesday. Both gasoline and diesel prices dropped 7.5-8.5 cents yesterday despite a rather mundane inventory report. The larger-than-expected build in crude oil inventories (+4.2 million barrels) was the only headline value of note, netting WTI futures a paltry 6-cent per barrel gain on the day.

The energy markets seem to be holding their breath for this morning’s release of the Personal Consumption Expenditures (PCE) data from the Bureau of Economic Analysis (BEA). The price index is the Fed’s preferred inflation monitor and has the potential to impact how the central bank moves forward with interest rates.

Nationwide refinery runs are still below their 5-year average with utilization across all PADDs well below 90%. While PADD 3 production crossed its 5-year average, it’s important to note that measure includes the “Snovid” shutdown of 2021 and throughput is still below the previous two years with utilization at 81%.

We will have to wait until next week to see if the FCC and SRU shutdowns at Flint Hills’ Corpus Christi refinery will have a material impact on the regions refining totals. Detail on the filing can be found on the Texas Commission on Environmental Quality website.

Update: the PCE data shows a decrease in US inflation to 2.4%, increasing the likelihood of a rate cut later this year. Energy futures continue drifting, unfazed.

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
Pivotal Week For Price Action
Market TalkWednesday, Feb 28 2024

It’s Red Across The Board For Energy Prices So Far This Morning With The ‘Big Three’ Contracts All Trading Lower To Start The Day

It’s red across the board for energy prices so far this morning with the ‘big three’ contracts (RBOB, HO, WTI) all trading lower to start the day. Headlines are pointing to the rise in crude oil inventories as the reason for this morning’s pullback, but refined product futures are leading the way lower, each trading down 1% so far, while the crude oil benchmark is only down around .3%.

The American Petroleum Institute published their national inventory figures yesterday afternoon, estimating an 8+ million-barrel build in crude oil inventory across the country. Gasoline and diesel stocks are estimated to have dropped by 3.2 and .5 million barrels last week, respectively. The official report from the Department of Energy is due out at its regular time this morning (9:30 CST).

OPEC’n’friends are rumored to be considering extending their voluntary production cuts into Q2 of this year in an effort to buoy market prices. These output reductions, reaching back to late 2022, are aimed at paring back global supply by about 2.2 million barrels per day and maintaining a price floor. On the flip side, knowledge of the suspended-yet-available production capacity and record US output is keeping a lid on prices.

How long can they keep it up? While the cartel’s de facto leader (Saudi Arabia) may be financially robust enough to sustain itself through reduced output indefinitely, that isn’t the case for other member countries. Late last year Angola announced it will be leaving OPEC, freeing itself to produce and market its oil as it wishes. This marks the fourth membership suspension over the past decade (Indonesia 2016, Qatar 2019, Ecuador 2020).

The spot price for Henry Hub natural gas hit a record low, exchanging hands for an average of $1.50 per MMBtu yesterday. A rise in production over the course of 2023 and above average temperatures this winter have pressured the benchmark to a price not seen in its 27-year history, much to Russia’s chagrin.

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