Energy Futures Knocked Backwards

Market TalkWednesday, Feb 13 2019
Energy Futures Knocked Backwards

The latest rally attempt in energy futures was knocked backwards sharply in Tuesday’s session, but the bulls dusted themselves off overnight and are giving it another shot this morning. Equity markets around the world continue to celebrate signals that the China-US trade war may be cooling, which seems to be aiding the early optimism in energy contracts.

As it often does when we approach an RVP transition, RBOB gasoline is leading the volatility, rallying by 5 cents mid-morning Tuesday, only to drop back 4.5 cents in the afternoon. Overnight, the swings have continued with 2.5 cent gains largely evaporating as of this writing. Reports of unplanned refinery maintenance around the country continue to create volatility in refined products.

It’s alphabet soup time: In just two days we’re getting monthly reports from the EIA, IEA & OPEC, along with the normal weekly reports from the API and DOE.

The API reportedly showed crude oil stocks declining by just under 1 million barrels last week, distillates dropped by around 2.5 million barrels, while gasoline stocks rose 750,000. The DOE/EIA’s weekly estimate will be out at its normal time this morning.

The IEA released its monthly oil market report this morning, holding its demand estimates for 2019 steady, while increasing its global supply forecast) as US oil production continues to swell to record highs. The theme of US oil production growth in 2019 being enough to offset OPEC’s intentional and unintentional production cuts was consistent in all 3 of the OPEC, IEA and EIA monthly reports. Of course, since everyone agrees, that sets the stage for a big move in the market if it doesn’t pan out.

The EIA and IEA reports also focused on the growing issue of quality vs quantity of oil driven by decreasing heavy oil supplies and their potential impact on US Gulf Coast Refiners.

From the IEA

Crude oil quality is another issue, and, in the wider context of supply in the early part of 2019, it is even more important. Sanctions against Iran, a fall in OPEC supply of 930 kb/d in January, sanctions against PDVSA and Alberta supply cuts all impact directly on the supply of heavy, sour oil. In the case of PDVSA, its oil is typically of the heaviest quality and requires the addition of significant quantities of imported diluents or domestic blending. With the import of diluents now sanctioned by the US, and problems in producing its own lighter crudes, PDVSA will have a tough job to make enough on spec barrels available for export. This is before it gets to the issue of who will buy them.

Long before the US shale revolution took off, Gulf Coast refiners had invested in equipment to process barrels expected to get heavier and sourer.

The EIA’s Short Term Energy Outlook also noted the record-setting weakness in gasoline margins over the past 3 months:

From November through January, the RBOB–Brent crack spread was negative for 43 of the 62 trading days, a record amount of time the crack spread was negative for any three-month period since RBOB began trading in 2005. The low cracks spreads reflect relatively flat gasoline demand growth relative to strong supply globally, resulting in elevated inventory levels.

Gasoline inventories are high in every major storage hub globally and are likely contributing to low crack spreads. As of the first week of February, inventories were 15% and 24% higher than their five-year (2014–18) averages in Singapore and the Amsterdam, Rotterdam, and Antwerp (ARA) hubs, respectively. In the United States, gasoline inventories reached an all-time high of nearly 260 million barrels for the week ending January 18.

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Market TalkThursday, Mar 28 2024

Energy Markets Are Ticking Modestly Higher Heading Into The Easter Weekend With Crude Oil Prices Leading The Way Up About $1.25/Barrel Early Thursday Morning

Energy markets are ticking modestly higher heading into the Easter Weekend with crude oil prices leading the way up about $1.25/barrel early Thursday morning, while gasoline prices are up around 2.5 cents and ULSD futures are about a penny.

Today is the last trading day for April HO and RBOB futures, an unusually early expiration due to the month ending on a holiday weekend. None of the pricing agencies will be active tomorrow since the NYMEX and ICE contracts are completely shut, so most rack prices published tonight will carry through Monday.

Gasoline inventories broke from tradition and snapped a 7 week decline as Gulf Coast supplies increased, more than offsetting the declines in PADDs 1, 2 and 5. With gulf coast refiners returning from maintenance and cranking out summer grade gasoline, the race is now officially on to move their excess through the rest of the country before the terminal and retail deadlines in the next two months. While PADD 3 run rates recover, PADD 2 is expected to see rates decline in the coming weeks with 2 Chicago-area refineries scheduled for planned maintenance, just a couple of weeks after BP returned from 7 weeks of unplanned repairs.

Although terminal supplies appear to be ample around the Baltimore area, we have seen linespace values for shipping gasoline on Colonial tick higher in the wake of the tragic bridge collapse as some traders seem to be making a small bet that the lack of supplemental barge resupply may keep inventories tight until the barge traffic can move once again. The only notable threat to refined product supplies is from ethanol barge traffic which will need to be replaced by truck and rail options, but so far that doesn’t seem to be impacting availability at the rack. Colonial did announce that they would delay the closure of its underutilized Baltimore north line segment that was scheduled for April 1 to May 1 out of an “abundance of caution”.

Ethanol inventories reached a 1-year high last week as output continues to hold above the seasonal range as ethanol distillers seem to be betting that expanded use of E15 blends will be enough to offset sluggish gasoline demand. A Bloomberg article this morning also highlights why soybeans are beginning to displace corn in the subsidized food to fuel race.

Flint Hills reported a Tuesday fire at its Corpus Christi West facility Wednesday, although it’s unclear if that event will have a material impact on output after an FCC unit was “stabilized” during the fire. While that facility isn’t connected to Colonial, and thus doesn’t tend to have an impact on USGC spot pricing, it is a key supplier to the San Antonio, Austin and DFW markets, so any downtime may be felt at those racks.

Meanwhile, P66 reported ongoing flaring at its Borger TX refinery due to an unknown cause. That facility narrowly avoided the worst wildfires in state history a few weeks ago but is one of the frequent fliers on the TCEQ program with upsets fairly common in recent years.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.

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Market TalkWednesday, Mar 27 2024

Most Energy Contracts Are Ticking Lower For A 2nd Day After A Trickle Of Selling Picked Up Steam Tuesday

Most energy contracts are ticking lower for a 2nd day after a trickle of selling picked up steam Tuesday. ULSD futures are down a dime from Monday’s highs and RBOB futures are down 7 cents.

Diesel prices continue to look like the weak link in the energy chain, with futures coming within 1 point of their March lows overnight, setting up a test of the December lows around $2.48 if that resistance breaks down. Despite yesterday’s slide, RBOB futures still look bullish on the weekly charts, with a run towards the $3 mark still looking like a strong possibility in the next month or so.

The API reported crude stocks increased by more than 9 million barrels last week, while distillates were up 531,000 and gasoline stocks continued their seasonal decline falling by 4.4 million barrels. The DOE’s weekly report is due out at its normal time this morning.

RIN values have recovered to their highest levels in 2 months around $.59/RIN for D4 and D6 RINs, even though the recovery rally in corn and soybean prices that had helped lift prices off of the 4 year lows set in February has stalled out. Expectations for more biofuel production to be shut in due to weak economics with lower subsidy values seems to be encouraging the tick higher in recent weeks, although prices are still about $1/RIN lower than this time last year.

Reminder that Friday is one of only 3 annual holidays in which the Nymex is completely shut, so no prices will be published, but it’s not a federal holiday in the US so banks will be open.

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