Energy Futures On Cusp Of Technical Collapse

Market TalkWednesday, Mar 15 2023
Pivotal Week For Price Action

WTI dropped below $70 for the first time since December 2021 overnight as markets around the world continue to reel from the fallout of multiple bank failures over the past week. Refined products are now teetering on the edge of a technical breakdown that could knock another 10-15 cents off of prices in short order and given the “risk off” sentiment gripping markets this week, it’s not hard to imagine that type of push lower in the next day or two regardless of any fundamental news.

Look at how the financial world has changed in just 1 week. Last Wednesday, no one thought the FED would hold rates steady at the March FOMC meeting, while 78% odds were given to a 50-point rate hike. Today, there’s a zero percent chance of a 50-point rate hike given and 40% odds that the FED will not raise rates at all. 

OPEC’s monthly oil market report kept its forecast for global oil demand steady for the year, as stronger economic growth in China was expected to be enough to offset the slowdown in activity in the US and Europe.  The report also highlighted the counter-seasonal weakness in distillates globally in February, as new refinery output in Asia put downward pressure on prices across the rest of the world, while the lack of winter heating demand kept buyers on the sidelines. The cartel’s total output ticked up by 117mb/day in February, with gains from Saudi Arabia, Nigeria and Libya offsetting declines in Angola and Iraq.

The API reported that US Gasoline stocks dropped by 4.6 million barrels last week, while distillates declined by 2.9 million barrels and crude oil stocks increased by 1.1 million barrels.  The EIA’s report is due out at its normal time this morning and may be shrugged off if there are fireworks going off in equity markets when it’s released as suddenly the Crude oil Adjustment factor just doesn’t seem so interesting. 

French strikes are continuing for an 8th day, with some refinery disruptions ongoing, but with generally much less impact than what we saw last fall when many fueling stations in the country ran dry.  It appears that the turnout for the protests has waned in the past several days, which is allowing some fuel shipments to continue.  A parliamentary vote is expected Thursday, which could mean more urgent protesting if pension reforms are passed, or celebrations and a return to normal operations if it fails. 

LyondellBasell issued a press release Tuesday that included an industry leading number of corporate buzzwords. The announcement obfuscated news that it had not found a buyer for its Houston refinery, and would continue with plans to exit the business, and perhaps retrofit the facility to produce Hydrogen as part of its “Circular & Low Carbon Solutions”.

The Deer Park refinery offered another example of how complicated the refining process can be, and why startups can be the most dangerous time for a facility when another fire broke out Tuesday, as the plant was attempting to restart operations after another fire in February.  

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

Market Talk Update 03.15.2023

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Pivotal Week For Price Action
Market TalkFriday, Apr 19 2024

Gasoline Futures Are Leading The Way Lower This Morning

It was a volatile night for markets around the world as Israel reportedly launched a direct strike against Iran. Many global markets, from equities to currencies to commodities saw big swings as traders initially braced for the worst, then reversed course rapidly once Iran indicated that it was not planning to retaliate. Refined products spiked following the initial reports, with ULSD futures up 11 cents and RBOB up 7 at their highest, only to reverse to losses this morning. Equities saw similar moves in reverse overnight as a flight to safety trade soon gave way to a sigh of relief recovery.

Gasoline futures are leading the way lower this morning, adding to the argument that we may have seen the spring peak in prices a week ago, unless some actual disruption pops up in the coming weeks. The longer term up-trend is still intact and sets a near-term target to the downside roughly 9 cents below current values. ULSD meanwhile is just a nickel away from setting new lows for the year, which would open up a technical trap door for prices to slide another 30 cents as we move towards summer.

A Reuters report this morning suggests that the EPA is ready to announce another temporary waiver of smog-prevention rules that will allow E15 sales this summer as political winds continue to prove stronger than any legitimate environmental agenda. RIN prices had stabilized around 45 cents/RIN for D4 and D6 credits this week and are already trading a penny lower following this report.

Delek’s Big Spring refinery reported maintenance on an FCC unit that would require 3 days of work. That facility, along with several others across TX, have had numerous issues ever since the deep freeze events in 2021 and 2024 did widespread damage. Meanwhile, overnight storms across the Midwest caused at least one terminal to be knocked offline in the St. Louis area, but so far no refinery upsets have been reported.

Meanwhile, in Russia: Refiners are apparently installing anti-drone nets to protect their facilities since apparently their sling shots stopped working.

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

Pivotal Week For Price Action
Market TalkThursday, Apr 18 2024

The Sell-Off Continues In Energy Markets, RBOB Gasoline Futures Are Now Down Nearly 13 Cents In The Past Two Days

The sell-off continues in energy markets. RBOB gasoline futures are now down nearly 13 cents in the past two days, and have fallen 16 cents from a week ago, leading to questions about whether or not we’ve seen the seasonal peak in gasoline prices. ULSD futures are also coming under heavy selling pressure, dropping 15 cents so far this week and are trading at their lowest level since January 3rd.

The drop on the weekly chart certainly takes away the upside momentum for gasoline that still favored a run at the $3 mark just a few days ago, but the longer term up-trend that helped propel a 90-cent increase since mid-December is still intact as long as prices stay above the $2.60 mark for the next week. If diesel prices break below $2.50 there’s a strong possibility that we see another 30 cent price drop in the next couple of weeks.

An unwind of long positions after Iran’s attack on Israel was swatted out of the sky without further escalation (so far anyway) and reports that Russia is resuming refinery runs, both seeming to be contributing factors to the sharp pullback in prices.

Along with the uncertainty about where the next attacks may or may not occur, and if they will have any meaningful impact on supply, come no shortage of rumors about potential SPR releases or how OPEC might respond to the crisis. The only thing that’s certain at this point, is that there’s much more spare capacity for both oil production and refining now than there was 2 years ago, which seems to be helping keep a lid on prices despite so much tension.

In addition, for those that remember the chaos in oil markets 50 years ago sparked by similar events in and around Israel, read this note from the NY Times on why things are different this time around.

The DOE’s weekly status report was largely ignored in the midst of the big sell-off Wednesday, with few noteworthy items in the report.

Diesel demand did see a strong recovery from last week’s throwaway figure that proves the vulnerability of the weekly estimates, particularly the week after a holiday, but that did nothing to slow the sell-off in ULSD futures.

Perhaps the biggest next of the week was that the agency made its seasonal changes to nameplate refining capacity as facilities emerged from their spring maintenance.

PADD 2 saw an increase of 36mb/day, and PADD 3 increased by 72mb/day, both of which set new records for regional capacity. PADD 5 meanwhile continued its slow-motion decline, losing another 30mb/day of capacity as California’s war of attrition against the industry continues. It’s worth noting that given the glacial pace of EIA reporting on the topic, we’re unlikely to see the impact of Rodeo’s conversion in the official numbers until next year.

Speaking of which, if you believe the PADD 5 diesel chart below that suggests the region is running out of the fuel, when in fact there’s an excess in most local markets, you haven’t been paying attention. Gasoline inventories on the West Coast however do appear consistent with reality as less refining output and a lack of resupply options both continue to create headaches for suppliers.

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