Energy Futures Moving In Opposite Directions
A conflicting inventory report has energy futures moving in opposite directions to start Wednesday’s session, a pattern this week in which gasoline prices tend to want to resist the pull of crude oil and diesel prices, while the entire complex moves back and forth waiting on the next bit of news from Iran, China or the FED.
The API was said to show a large crude oil draw of almost 11 million barrels last week – which was widely expected as producers shut in ahead of Hurricane Barry – which is helping oil contracts find a bid this morning. Products saw increases of 4.4 million barrels for gasoline, which seems to be pushing RBOB futures lower and 1.4 million barrels for diesel. The EIA’s weekly status report is due out at its normal time this morning.
Tuesday’s session started out in a mirror image of today’s start with RBOB moving higher while the other contracts moved lower. By the end of the day all contracts were in the green, aided by a strong day for equity markets, and reports that the US may have destroyed more than one Iranian drone last week. Besides that report, there do not appear to have been any new developments in the Persian Gulf drama, which is keeping buyers at bay for now.
Many headlines for both equity and energy prices continue to focus on what the FOMC will do with interest rates next week. The CME’s fedwatch tool shows that traders are giving a 100% probability of a rate cut with 25pts vs 50 the hot debate. The Dallas FED meanwhile released its Permian Basin Economic indicator report this week, showing that while Texas’s unemployment rate just reached an all-time low, the rate in the Permian is increasing as rig counts drop. It’s worth noting that despite the drop in rig counts, production levels continue to climb due to an overhang of Drilled but uncompleted wells.
The EIA continues to highlight the changing landscape of global oil trade this week, with a note this morning showing how Saudi Arabia is sending less crude to the US, and more to Asian nations as US production swells. While China’s oil imports are a hot topic this week, the country is also increasing its export quota for refined products as the country’s refining capacity continues to grow.
A couple of other interesting reads today:
Reuters takes a look at OPEC’s changing metric for considering a balanced global oil market.
Bloomberg interviews a ship captain as he steers an oil tanker through the Strait of Hormuz.
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Week 16 - US DOE Inventory Recap
Energy Markets Trading Quietly In The Red As Ethanol Prices Rally To Five-Month High
Energy markets are trading quietly in the red to start Wednesday’s session after a healthy bounce Tuesday afternoon suggested the Israel-Iran-linked liquidation had finally run its course.
There are reports of more Ukrainian strikes on Russian energy assets overnight, but the sources are sketchy so far, and the market doesn’t seem to be reacting as if this is legitimate news.
Ethanol prices have rallied to a 5-month high this week as corn and other grain prices have rallied after the latest crop progress update highlighted risks to farmers this year, lower grain export expectations from Ukraine, and the approval of E15 blends this summer despite the fact it pollutes more. The rally in grain and renewables prices has also helped RIN values find a bid after it looked like they were about to test their 4-year lows last week.
The API reported small changes in refined product inventories last week, with gasoline stocks down about 600,000, while distillates were up 724,000. Crude oil inventories increased by 3.2 million barrels according to the industry-group estimates. The DOE’s weekly report is due out at its normal time this morning.
Total reported another upset at its Port Arthur refinery that’s been a frequent flier on the TCEQ alerts since the January deep freeze knocked it offline and damaged multiple operating units. This latest upset seems minor as the un-named unit impacted was returned to normal operations in under an hour. Gulf Coast basis markets have shrugged off most reports of refinery upsets this year as the region remains well supplied, and it’s unlikely we’ll see any impact from this news.
California conversely reacted in a big way to reports of an upset at Chevron’s El Segundo refinery outside of LA, with CARBOB basis values jumping by more than a dime. Energy News Today continued to show its value by reporting the upset before the flaring notice was even reported to area regulators, proving once again it’s ahead of the curve on refinery-related events. Another industry news outlet meanwhile struggled just to remember where the country’s largest diesel seller is located.
Click here to download a PDF of today's TACenergy Market Talk
The Struggle For Renewable Producers Continues As A Rapid Influx Of Supply And Crashing Credit Prices Make Biodiesel
The sigh of relief selloff continues in energy markets Tuesday morning, with gasoline prices now down more than 20 cents in 7 sessions, while diesel prices have dropped 26 cents in the past 12. Crude oil prices are within a few pennies of reaching a 1 month low as a lack of headlines from the world’s hot spots allows some reflection into the state of the world’s spare capacity for both oil and refined products.
Gasoline prices are trading near a 6-week low this morning, but still need to fall about another nickel in order to break the weekly trendline that pushed prices steadily higher since December. If that trend breaks, it will be safer to say that we saw the end of the spring gasoline rally on April 12th for the 2nd year in a row. Last year RBOB futures peaked on April 12 at $2.8943 and bottomed out on May 4th at $2.2500. The high (at this point) for this year was set on April 12th at $2.8516, and the low overnight was $2.6454.
It’s not just energy commodities that are seeing an unwind of the “flight to safety” trade: Gold prices had their biggest selloff in 2 years Monday and continue to point lower today. Just how much money poured into commodities in the weeks leading up to the direct confrontation between Israel and Iran is unclear, but we have seen in year’s past that these unwind-events can create a snowball effect as traders can be forced to sell to cover their margin calls.
Supply > Demand: The EIA this morning highlighted the record setting demand for natural gas in the US last year, which was not nearly enough to offset the glut of supply that forced prices to a record low in February. A shortage of natural gas in Europe was a key driver of the chaotic markets that smashed just about every record in 2022, and an excess of natural gas supply in Europe and the US this year is acting as a buffer, particularly on diesel prices.
The struggle for renewable producers continues as a rapid influx of supply and crashing credit prices make Biodiesel, RD and SAF unprofitable for many. In addition to the plant closures announced in the past 6 months, Vertex Energy reported Monday it’s operating its Renewable Diesel facility in Mobile AL at just 50% of capacity in Q1. The truly scary part for many is that the $1/gallon Blender's tax credit ends this year and is being replaced by the “Clean” Fuel production credit that forces producers to prove their emissions reductions in order to qualify for an increased subsidy. It’s impossible to say at this point how much the net reduction will be for domestic producers, but importers will get nothing, and at current CI values, many biodiesel producers may see their “blend credit” cut by more than half.
Click here to download a PDF of today's TACenergy Market Talk.