Energy Futures Continue To Hold In A Sideways Pattern

Market TalkMonday, Nov 1 2021
Pivotal Week For Price Action

Energy futures continue to hold in a sideways pattern, setting up more back and forth action, in what appears to be a bit of wait and see ahead OPEC & COP26 meetings this week. One thing we learned, from the G20 meetings over the weekend: Most of the world is in a tough position of wanting less fossil fuels long term, but needing more of them today, and not really agreeing on how to close that gap. 

Reminder that the severe backwardation in RBOB futures has the newly prompt December contract trading well below where the November contract when off the board Friday, so even though prices are up a couple cents this morning a continuous chart will show RBOB down 7 cents or more. The ULSD curve isn’t as steep as RBOB, but here too, cash prices are ticking higher around 1.5 cents this morning even though prompt futures values are lower today than were Friday.

China announced Sunday that it would be releasing gasoline and diesel fuel from its strategic reserves to help stabilize markets, a move some reports suggested would push prices lower Monday. Naturally the market had other ideas as the rare move proves 2 things: 1) China’s energy traders are some of the best in the world, stockpiling reserves when prices plummeted 18 months ago and selling them now at 7 year highs and 2) there are limited options short term to supplement dwindling energy supplies.

Money managers reduced their net length in WTI and Brent contracts last week, but added to their length in refined products. RBOB and Brent both saw a jump in new short positions added as some funds appear to be trying to call a top to this market, while ULSD and WTI saw a large amount of short covering, proving how challenging (and costly) trying to call a top can be. A WSJ article over the weekend highlighted how inflation fears can drive hedge funds and other money managers into oil…and thereby help create inflation. 

Baker Hughes reported a net increase of 1 oil rig drilling last week, with the DJ Niobrara and Williston basins each adding 1 rig, while the Permian declined by 1. A rare occurrence last week: The Permian saw a new natural gas rig put to work, showing the industry adjusting to the new world where natural gas is again a commodity worth selling rather than burning off, and where the infrastructure has grown to be able to bring that gas to market.

One month left in the hurricane season: Tropical storm Wanda has formed over the Atlantic, but looks like it will stay far away from the US and not be a threat. There’s one other system currently being tracked by the NHC but it too looks like it will stay offshore if it develops. 

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Market Talk Update 11.1.2021

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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.