Energy Futures Drift Higher Ahead Of Fed Announcement

Market TalkWednesday, Jun 14 2023
Pivotal Week For Price Action

After two days of large back and forth swings to start the week, energy futures are quietly ticking higher this morning as markets around the world await the FED’s latest announcement later today. Refined products had been bouncing back and forth across the break -even line in the early going but are holding gains of 2-3 cents around 8am central, adding to Tuesday’s recovery rally.   

Gasoline prices remain near the middle of their recent trading range, with a neutral technical outlook after the annual spring “driving season” rally seems to have run its course. ULSD prices meanwhile are creeping towards the top end of the trading range that’s held prices for the past 2 months. If we see prices move above $2.45 that would open door for a run at $2.60 short term, even though longer-term charts suggest this sideways pattern may just be a temporary consolidation of the bear market that’s already seen prices drop by more than $2.50/gallon in the past 9 months.

Just about everyone expects the FOMC to hold rates steady in its announcement due out at 1pm central today. The CME’s FedWatch tool shows a 94% probability that the target rate will be left alone today, a big increase from the 74% odds given prior to yesterday’s CPI report that showed inflation holding in most categories besides fuel prices.  More people are betting on at least 1 more rate increase to combat that less “transitory” inflation, with odds of at least a 25 point increase now set at 40% up from 24% prior to the CPI report.

The API reported inventory builds across the board last week with gasoline stocks up 2 million barrels on the week, diesel up 1.4 million and crude oil up 1 million thanks to another release from the SPR of 1.9 million barrels on the week. The DOE’s weekly report is due out at its normal time, and may be largely shrugged off due to the other news of the day, not to mention that several of the more meaningful data points are admittedly inaccurate.

OPEC’s monthly report showed the cartel making good on earlier promises to cut production, with output for the month down 464,000 barrels/day, despite healthy output increases from Nigeria and Iran, who are exempt from the output cuts. The report highlighted stronger than expected economic activity in the first quarter of 2023, and suggested China’s reopening will continue to keep fuel demand on an upward trajectory, despite signs of slowing in developed nations. The OPEC report also highlighted an increase in refinery runs and decrease in margins as facilities ramp up operations to full run rates after a busy spring maintenance season and Chinese export quotas are expected to continue bringing more supply to the global market. Margins for US operators remain above those in Europe and Asia, although this report does not normalize spreads for the costs of various environmental programs. 

Speaking of which, the EPA announced it was delaying its RFS volume targets – again – on Tuesday. The timing and method of delay are even more suspect than normal (keep in mind we’re already 19 months past the law’s deadline) as the EPA had to convince biofuel trade association Growth Energy to go along with the plan, which seems to imply a favorable outcome for renewable fuel proponents. The RIN market disagreed with that theory however, with a flurry of afternoon trades done after the announcement that pushed 2023 levels down 4 cents from levels done in the morning.

While OPEC thinks China’s economic recovery is continuing, China doesn’t seem to think so as the country prepares to provide new economic stimulus and perhaps cut its interest rates tomorrow, in an effort to prop up stalling growth. 

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

Market Talk Update 06.14.2023

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Pivotal Week For Price Action
Market TalkFriday, Apr 19 2024

Gasoline Futures Are Leading The Way Lower This Morning

It was a volatile night for markets around the world as Israel reportedly launched a direct strike against Iran. Many global markets, from equities to currencies to commodities saw big swings as traders initially braced for the worst, then reversed course rapidly once Iran indicated that it was not planning to retaliate. Refined products spiked following the initial reports, with ULSD futures up 11 cents and RBOB up 7 at their highest, only to reverse to losses this morning. Equities saw similar moves in reverse overnight as a flight to safety trade soon gave way to a sigh of relief recovery.

Gasoline futures are leading the way lower this morning, adding to the argument that we may have seen the spring peak in prices a week ago, unless some actual disruption pops up in the coming weeks. The longer term up-trend is still intact and sets a near-term target to the downside roughly 9 cents below current values. ULSD meanwhile is just a nickel away from setting new lows for the year, which would open up a technical trap door for prices to slide another 30 cents as we move towards summer.

A Reuters report this morning suggests that the EPA is ready to announce another temporary waiver of smog-prevention rules that will allow E15 sales this summer as political winds continue to prove stronger than any legitimate environmental agenda. RIN prices had stabilized around 45 cents/RIN for D4 and D6 credits this week and are already trading a penny lower following this report.

Delek’s Big Spring refinery reported maintenance on an FCC unit that would require 3 days of work. That facility, along with several others across TX, have had numerous issues ever since the deep freeze events in 2021 and 2024 did widespread damage. Meanwhile, overnight storms across the Midwest caused at least one terminal to be knocked offline in the St. Louis area, but so far no refinery upsets have been reported.

Meanwhile, in Russia: Refiners are apparently installing anti-drone nets to protect their facilities since apparently their sling shots stopped working.

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

Pivotal Week For Price Action
Market TalkThursday, Apr 18 2024

The Sell-Off Continues In Energy Markets, RBOB Gasoline Futures Are Now Down Nearly 13 Cents In The Past Two Days

The sell-off continues in energy markets. RBOB gasoline futures are now down nearly 13 cents in the past two days, and have fallen 16 cents from a week ago, leading to questions about whether or not we’ve seen the seasonal peak in gasoline prices. ULSD futures are also coming under heavy selling pressure, dropping 15 cents so far this week and are trading at their lowest level since January 3rd.

The drop on the weekly chart certainly takes away the upside momentum for gasoline that still favored a run at the $3 mark just a few days ago, but the longer term up-trend that helped propel a 90-cent increase since mid-December is still intact as long as prices stay above the $2.60 mark for the next week. If diesel prices break below $2.50 there’s a strong possibility that we see another 30 cent price drop in the next couple of weeks.

An unwind of long positions after Iran’s attack on Israel was swatted out of the sky without further escalation (so far anyway) and reports that Russia is resuming refinery runs, both seeming to be contributing factors to the sharp pullback in prices.

Along with the uncertainty about where the next attacks may or may not occur, and if they will have any meaningful impact on supply, come no shortage of rumors about potential SPR releases or how OPEC might respond to the crisis. The only thing that’s certain at this point, is that there’s much more spare capacity for both oil production and refining now than there was 2 years ago, which seems to be helping keep a lid on prices despite so much tension.

In addition, for those that remember the chaos in oil markets 50 years ago sparked by similar events in and around Israel, read this note from the NY Times on why things are different this time around.

The DOE’s weekly status report was largely ignored in the midst of the big sell-off Wednesday, with few noteworthy items in the report.

Diesel demand did see a strong recovery from last week’s throwaway figure that proves the vulnerability of the weekly estimates, particularly the week after a holiday, but that did nothing to slow the sell-off in ULSD futures.

Perhaps the biggest next of the week was that the agency made its seasonal changes to nameplate refining capacity as facilities emerged from their spring maintenance.

PADD 2 saw an increase of 36mb/day, and PADD 3 increased by 72mb/day, both of which set new records for regional capacity. PADD 5 meanwhile continued its slow-motion decline, losing another 30mb/day of capacity as California’s war of attrition against the industry continues. It’s worth noting that given the glacial pace of EIA reporting on the topic, we’re unlikely to see the impact of Rodeo’s conversion in the official numbers until next year.

Speaking of which, if you believe the PADD 5 diesel chart below that suggests the region is running out of the fuel, when in fact there’s an excess in most local markets, you haven’t been paying attention. Gasoline inventories on the West Coast however do appear consistent with reality as less refining output and a lack of resupply options both continue to create headaches for suppliers.

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