Energy Futures Trading Sideways

Market TalkTuesday, Jul 23 2019
Energy Prices Treading Water

Energy futures are trading sideways to start Tuesday’s session as the tensions with Iran near the world’s most important waterway seem to have cooled for the time being. A new prime minister has been chosen in the U.K., and it seems like the markets may be taking a wait-and-see approach to how he’ll handle the Iranian seizure of a British ship last week.

RBOB gasoline futures are moving opposite of diesel and crude oil for a 2nd straight day, in what appears to be a bit of confusion over the PES bankruptcy, and whether or not the debtor in possession financing arrangement means the plant could reopen again at some point.

As the forward curve charts below show, futures markets remain primarily in a state of backwardation for most of the next several years, with near-term supply concerns fading compared to new capacity expectations and demand concerns. The notable exceptions are the contango in ULSD through year end – when the new IMO rules take effect – and WTI holding a small carry in the front few months as production holds near record highs.

As predicted, Chinese imports of Iranian crude have become the latest hot topic in trade talks, after a Chinese company was sanctioned for unauthorized purchases. It seems unlikely this will have an immediate impact on prices, but is a reminder of the simmering tensions with both countries.

The IEA published a note Monday detailing the emergency stockpiles of oil held by participating countries around the world that are “large enough to cover any disruptions in oil supply from the Strait of Hormuz for an extended period.” The agency also noted that global supplies are above average, which should help cushion the impact if shipping through the strait is disrupted.

The EIA meanwhile published a note this morning detailing how another key shipping bottleneck, the Suez Canal, has seen its activity shift in the past few years as the US and Russia become bigger players in the global petroleum markets.

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Pivotal Week For Price Action
Pivotal Week For Price Action
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.

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Pivotal Week For Price Action
Market TalkTuesday, Mar 26 2024

Refined Products Seeing Small Losses Of Around A Penny While Crude Oil Contracts Hover Just Above Break Even

Energy futures are taking a breather to start Tuesday’s trading, with refined products seeing small losses of around a penny while crude oil contracts hover just above break even.

No new news on either the Red Sea shipping or Russian Refining attacks this morning, so Cocoa prices seem to be taking over the commodity headlines while energy markets wait on their next big move.

RBOB gasoline futures set a new 6-month high Monday at $2.7711, which leaves the door open on the weekly charts for the spring rally to continue. A run at the $3 mark is certainly possible in the next few weeks before the typical seasonal price peak is set just before the start of driving season.

A container ship lost power and crashed into the Francis Scott Key bridge in Baltimore this morning, causing a devastating collapse. While cargo shipping into the area will no doubt be impacted by this event, fuel supplies are unlikely to see any notable change since the 9 fuel terminals in Baltimore are primarily supplied by Colonial pipeline. Barges from Philadelphia refineries do supplement Baltimore supplies at times, and those vessel flows will be impacted at least until rescue operations are completed and the bridge sections removed from the waterway. That said, since shipping up from the Gulf Coast via Colonial is generally cheaper than shipping an NY Harbor-priced barrel south, the amount of supply disrupted by this event will be minimal.

While we’re still waiting on the official forecasts for the Atlantic Hurricane season, early reports continue to suggest that we could be in for a very busy year due to warm water temperatures and a forming La Nina pattern.

Dallas meanwhile is preparing for a different sort of disruption, with city officials encouraging companies to let employees work from home during the solar eclipse on April 8th as metroplex traffic is expected to surge. While some isolated fuel outages are certainly possible if people start panic buying gasoline they don’t need, there’s no reason to expect any widespread impact from the demand spike.

Today’s interesting read: Why AI requires a staggering amount of electricity and may create supply competition for EVs that will end up benefitting fossil fuels.

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