Energy Futures Had A Big Rally On Friday

Market TalkTuesday, Dec 27 2022
Pivotal Week For Price Action

Energy futures had a big rally on Friday, and are following through with higher prices to start the short week as a pair of major supply disruptions, one actual and another potential, grip the market.  ULSD continues to lead the move higher and came within striking distance of setting a new high for December overnight, marking a rally of more than 60 cents/gallon since bottoming out 2.5 weeks ago.  

Russia threatened to cut its oil output in retaliation for sanctions on Friday, which sounds scary but may actually have to do more with limited options to sell and transport some of the nation’s production than a strategic plan to strike back at nations participating in the embargo.

Numerous refineries were knocked offline by the winter storm last week, including several of the largest in the country.  Refineries accounting for approximately 18% of total US capacity had units reported offline over the weekend, although the total number of facilities impacted is likely to be much higher, which could place this event in the top 5 all time for disruptions.  The steady stream of reports of refineries dropping had basis values for gasoline and distillates rallying in addition to the strong move higher in futures on Friday as the big physical shippers were scrambling to find replacement barrels. 

Much warmer temps are sweeping the country allowing damage to be assessed and restarts to begin.  While there’s never a good time for a mass refinery disruption, the week between Christmas and New Years typically has the weakest demand of the year, so may limit the impact of these shutdowns on the market.  The timing is also likely to encourage some of those facilities to move up maintenance to take advantage of units already being offline and demand being weak.  Oil and natural gas output was also hit by the huge storm, but it appears that the electric grids held up well in most cases, unlike what we experienced in early 2021. 

The disruptions weren’t limited to production and refining facilities.  Numerous terminals and pipelines across the country were reporting various issues, and vessel traffic in and around the NY Harbor was temporarily halted as the storm passed.  Here too the impacts may have been much worse if they hadn’t happened just after the pre-holiday rush and just before Christmas day, which marks the slowest day for terminal loadings of the entire year.

Money managers were jumping back on the energy bandwagon last week with large percentage increases in net length seen across the board.  While the percentage increases are large, the starting positions were fairly small, so the actual number of contracts added was less impressive.  New length and short covering were consistent for crude and products, while open interest continues to hover near 6 year lows. 

Baker Hughes reported 2 more oil rigs and 1 more natural gas rig drilling in the US last week, after both counts had declined in the prior 2 weeks.  Drilling activity in the US has stagnated over the past couple of months as lower prices and various supply chain and labor shortages continue to have producers acting conservatively.

Keystone pipeline received approval to restart its shuttered line on Friday, with flows to the Cushing OK hub expected to resume this week. 

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Market Talk Update 12.27.22

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Pivotal Week For Price Action
Market TalkWednesday, Jun 7 2023

Energy Prices Fluctuate: Chinese Imports Surge, Saudi Arabia Cuts Output and Buys Golf

Energy prices continue their back-and-forth trading, starting Wednesday’s session with modest gains, after a round of selling Tuesday wiped out the Saudi output cut bounce. 

A surge in China’s imports of crude oil and natural gas seem to be the catalyst for the early move higher, even though weak export activity from the world’s largest fuel buyer suggests the global economy is still struggling. 

New tactic?  Saudi Arabia’s plan to voluntarily cut oil production by another 1 million barrels/day failed to sustain a rally in oil prices to start the week, so they bought the PGA tour

The EIA’s monthly Short Term Energy Outlook raised its price forecast for oil, citing the Saudi cuts, and OPEC’s commitment to extend current production restrictions through 2024. The increase in prices comes despite reducing the forecast for US fuel consumption, as GDP growth projections continue to decline from previous estimates. 

The report included a special article on diesel consumption, and its changing relationship with economic activity that does a good job of explaining why diesel prices are $2/gallon cheaper today than they were a year ago.   

The API reported healthy builds in refined product inventories last week, with distillates up 4.5 million barrels while gasoline stocks were up 2.4 million barrels in the wake of Memorial Day. Crude inventories declined by 1.7 million barrels on the week. The DOE’s weekly report is due out at its normal time this morning. 

We’re still waiting on the EPA’s final ruling on the Renewable Fuel Standard for the next few years, which is due a week from today, but another Reuters article suggests that eRINs will not be included in this round of making up the rules.

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

Pivotal Week For Price Action
Pivotal Week For Price Action
Market TalkTuesday, Jun 6 2023

Energy Prices Retreat, Global Demand Concerns Loom

So much for that rally. Energy prices have given back all of the gains made following Saudi Arabia’s announcement that it would voluntarily withhold another 1 million barrels/day of oil production starting in July. The pullback appears to be rooted in the ongoing concerns over global demand after a soft PMI report for May while markets start to focus on what the FED will do at its FOMC meeting next week.

The lack of follow through to the upside leaves petroleum futures stuck in neutral technical territory, and since the top end of the recent trading range didn’t break, it seems likely we could see another test of the lower end of the range in the near future.  

RIN prices have dropped sharply in the past few sessions, with traders apparently not waiting on the EPA’s final RFS ruling – due in a week – to liquidate positions. D6 values dropped to their lowest levels in a year Monday, while D4 values hit a 15-month low. In unrelated news, the DOE’s attempt to turn seaweed into biofuels has run into a whale problem.  

Valero reported a process leak at its Three Rivers TX refinery that lasted a fully 24 hours.  That’s the latest in a string of upsets for south Texas refineries over the past month that have kept supplies from San Antonio, Austin and DFW tighter than normal. Citgo Corpus Christi also reported an upset over the weekend at a sulfur recovery unit. Several Corpus facilities have been reporting issues since widespread power outages knocked all of the local plants offline last month.  

Meanwhile, the Marathon Galveston Bay (FKA Texas City) refinery had another issue over the weekend as an oil movement line was found to be leaking underground but does not appear to have impacted refining operations at the facility. Gulf Coast traders don’t seem concerned by any of the latest refinery issues, with basis values holding steady to start the week.

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