Energy Futures Facing Second Day Of Selling

Market TalkTuesday, Aug 3 2021
Pivotal Week For Price Action

Look out below? Energy futures are facing a second day of selling after an overnight rally attempt failed, setting up another test of the bull market that has pushed prices higher for the past 9 months. The headlines are trying to pin the move on rising COVID case counts, and weaker (but still expanding) economic numbers from the US and China, although the timing of the price swings intraday – and the lack of correlation with moves in equity markets – suggests this is more of a technically driven selloff (perhaps the hedge funds are growing weary of whiplash) rather than a macro-economic trade. 

Depending on how you choose to draw your trend-lines, you could say that if WTI stays below $70 today we’re destined to see a drop to $65 in short order, or you might saw we need another $2 of downside before saying the end of the rally is here. Refined products are in a similar situation, still trading some 16 cents above where they dropped to 2 weeks ago, but looking more likely to see another wave of heavy selling. 

Taking over the West: HollyFrontier is buying Sinclair’s energy assets, in a deal valued around $2 billion, just months after agreeing to buy Shell’s refinery in Washington state. The deal gives Holly an incredible amount of optionality across the rocky mountain & PNW regions with both traditional and renewable diesel refining capacity. That geographic concentration could also bring with it some anticompetitive concerns that could complicate closing.  

Speaking of anticompetitive concerns: OPIS is getting yet another owner. Dow Jones’ parent News Corp is acquiring the company in a deal valued at $1.15 billion, or roughly 17 times EBITDA. That deal should allow the merger of S&P Global (Platts parent) and IHS Markit to continue, after anti-competitive concerns prevented Platts from acquiring OPIS for the 2nd time in 10 years. Paying that multiple of earnings may sound frothy to some, and a sign of a market top to others, and looks like yet another sign of companies racing to make a play on the various aspects of emissions and carbon trading, which could make the deal a bargain if OPIS can outpace its rivals in that space.

Coming to America: See this Bloomberg article on the trucking industry reaching overseas to deal with the driver shortage plaguing the country, and why a backlog in the immigration processing system is limiting that option.

We had a busy start to the Atlantic hurricane season, then a long lull since Elsa hit a few weeks ago thanks to high levels of Saharan Dust limiting storm development. There’s a new system given low odds of developing over the next week, but it looks to be a fish storm. Don’t rest too easy, the forecast still calls for an above-average season and 90% of the typical activity in a year is still in front of us. 

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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