Energy Futures Get A Bounce After 7 Days of Selling

Market TalkMonday, Aug 23 2021
Pivotal Week For Price Action

Energy futures are getting a bounce after 7 consecutive days of selling, giving the bulls a temporary reprieve, and delaying a push towards the March lows.

The remnants of Henri continue to dump heavy rain across parts of the North East, and while inland flooding will be a very real threat for the next couple of days, many areas are breathing a sigh of relief that the storm damage appears to be minimal. Power outages are relatively minor, and most of the fuel terminals in CT and RI that closed ahead of the storm were already reopened Sunday night. There’s still a lot of rain yet to come before this storm moves offshore tomorrow morning – and parts of NJ and NY that weren’t directly in the storm’s path seem to have taken the worst of it - but at this point, it appears we’ve dodged any major supply disruptions from this event, and now it’s a question of how much it will hit demand as drivers stay off the roads.

The National Hurricane Center is tracking 2 new storm systems this week, but both have low odds of development, and early models suggest neither one will be a threat to refining country. 

After RINs saw heavy selling on Thursday pushing prices down by roughly a dime, they dropped another 20 cents on Friday after multiple reports were released that the EPA was recommending reducing blending obligations for 2021, but increasing them for 2022.  Based on the market reaction, many didn’t care about the “increase in 2022” part.  While those recommendations still have to go through an approval period before becoming official, it looks like we’ll get to see another court battle over the Small Refinery Exemption portion of the RFS as Delek sued the EPA last week for failing to respond to its SRE request from 2019. This isn’t exactly news, as Delek had provided a notice of intent to sue the EPA for this issue 18 months ago, but should finally force the agency into making a decision that could set an important precedent.

Money managers cut back on their net length in energy contracts across the board last week, but the moves were relatively small, suggesting there was probably more liquidation happening after the report data was compiled last Tuesday. WTI length held by the large-speculative category of trader dropped to its lowest level since the rally began last November.   Refined products meanwhile actually saw new long positions added, but those were barely edged out by new short positions on the week. ULSD contracts continue to see large speculative bets on higher prices near 3 year highs, which could create more volatility if those funds decide they’re better off playing Robin Hood or crypto than the CME.

While interest in petroleum futures may be waning, speculators continue to add more length in carbon positions.  RGGI credits saw managed money reach a new record for speculative length last week, without a single short position reported for that trade category. CCAs did see a small pullback in speculative length for a 2nd week, which may have contributed to a larger pullback in prices following the 3rd quarter credit auction.

Baker Hughes reported 8 more oil rigs were put to work last week, 6 of which were in the “other” category of smaller basins, with the remaining 2 coming from the Permian. The total US oil rig count is now 233 rigs above its low set last year, but remains 278 rigs below where we saw it just before the COVID lockdowns started, even though prices were $10-$15/barrel lower then than they are today.

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

Market Update 8.23.21

News & Views

View All
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.