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

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Pivotal Week For Price Action
Market TalkFriday, Apr 12 2024

Charts Continue To Favor A Push Towards The $3 Mark For Gasoline, While Diesel Prices May Need To Be Dragged Along For The Ride

Energy prices are rallying once again with the expected Iranian attack on Israel over the weekend appearing to be the catalyst for the move. RBOB gasoline futures are leading the way once again, trading up more than a nickel on the day to reach a fresh 7 month high at $2.8280. Charts continue to favor a push towards the $3 mark for gasoline, while diesel prices may need to be dragged along for the ride.

So far it appears that Motiva Pt. Arthur is the only refinery that experienced a noteworthy upset from the storms that swept across the southern half of the country this week. Those storms also delayed the first round of the Masters, which matters more to most traders this week than the refinery upset.

Chevron’s El Segundo refinery in the LA-area reported an unplanned flaring event Thursday, but the big moves once again came from the San Francisco spot market that saw diesel prices rally sharply to 25 cent premiums to futures. The Bay Area now commands the highest prices for spot gasoline and diesel as the conversion of 1 out of the 4 remaining refineries to renewable output is not-surprisingly creating disruptions in the supply chain.

RIN values dropped back below the 50-cent mark, after the recovery rally ran out of steam last week. The EPA is facing numerous legal challenges on the RFS and other policies, and now half of the US states are challenging the agency’s new rule restricting soot emissions. That lack of clarity on what the law actually is or may be is having widespread impacts on environmental credits around the world and makes enforcement of such policies a bit of a joke. Speaking of which, the EPA did just fine a South Carolina company $2.8 million and require that it buy and retire 9 million RINs for improper reporting from 2013-2019. The cost of those RINs now is about 1/3 of what it was this time last year, so slow playing the process definitely appears to have paid off in this case.

The IEA continues to do its best to downplay global demand for petroleum, once again reducing its economic outlook in its Monthly Report even though the EIA and OPEC continue to show growth, and the IEA’s own data shows “Robust” activity in the first quarter of the year. The IEA has come under fire from US lawmakers for changing its priorities from promoting energy security, to becoming a cheerleader for energy transition at the expense of reality.

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

Pivotal Week For Price Action
Market TalkThursday, Apr 11 2024

Diesel Prices Continue To Be The Weak Link In The Energy Chain

Energy prices are ticking modestly lower this morning, despite warnings from the US that an Iranian attack on Israeli interest is “imminent” and reports of weather induced refinery outages, as demand fears seem to be outweighing supply fears temporarily. Diesel prices continue to be the weak link in the energy chain with both the DOE and OPEC reports giving the diesel bears reason to believe lower prices are coming.

The March PPI report showed a lower inflation reading for producers than the Consumer Price Index report, leading to an immediate bounce in equity futures after the big wave of selling we saw yesterday. To put the CPI impact in perspective, a week ago Fed Fund futures were pricing in an 80% chance of an interest rate cut by the FED’s July 31 meeting, and today those odds have shrunk to 40% according to the CME’s FedWatch tool.

OPEC’s monthly oil market report held a steady outlook for economic growth and oil demand from last month’s report, noting the healthy momentum of economic activity in the US. The cartel’s outlook also highlighted significant product stock increases last month that weighed heavily on refining margins, particularly for diesel. Given the US focus on ULSD futures that are deliverable on the East Coast, which continues to have relatively tight supply for diesel, it’s easy to overlook how quickly Asian markets have gotten long on distillates unless of course you’re struggling through the slog of excess supply in numerous west coast markets these days. The OPEC report noted this in a few different ways, including a 33% decline in Chinese product exports as the region simply no longer needs its excess. The cartel’s oil output held steady during March with only small changes among the countries as they hold to their output cut agreements.

If you believe the DOE’s diesel demand estimates, there’s reason to be concerned about domestic consumption after a 2nd straight week of big declines. The current estimate below 3 million barrels/day is something we typically only see the week after Christmas when many businesses shut their doors. We know the DOE’s figures are missing about 5% of total demand due to Renewable Diesel not being included in the weekly stats, and it’s common to see a drop the week after a holiday, but to lose more than a million barrels/day of consumption in just 2 weeks will keep some refiners on edge.

Most PADDs continue to follow their seasonal trends on gasoline with 1 and 2 still in their normal draw down period, while PADD 3 is rebuilding inventories faster than normal following the transition to summer grade products. That rapid influx of inventory in PADD 3 despite robust export activity helps explain the spike in premiums to ship barrels north on Colonial over the past 2 weeks. Gasoline also saw a sizeable drop in its weekly demand estimate, but given the holiday hangover effect, and the fact that it’s in line with the past 2 years, there’s not as much to be concerned about with that figure. While most of the activity happens in PADDs 1-3, the biggest disconnect is coming in PADDs 4 and 5, with gasoline prices in some Colorado markets being sold 50 cents or more below futures, while prices in some California markets are approaching 90 cents above futures.

Severe weather sweeping across the southern US knocked several units offline at Motiva’s Pt Arthur plant (the country’s largest refinery) Wednesday, and it seems likely that Louisiana refineries will see some disruption from the storm that spawned tornadoes close to the Mississippi River refining hub. So far cash markets haven’t reacted much, but they’ll probably need more time to see what damage may have occurred.

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