Energy Futures Treading Water To Start Week

Market TalkMonday, Mar 18 2019
Spring Breakout Rally Recovering From Hangover

Energy futures are treading water to start the week with prices hovering within striking distance of a technical breakout that could send prices up another 10% or more this spring, but so far unwilling to commit to that move.

OPEC announced they’re cancelling their April meeting, deciding to wait until June to decide if it needs to continue with its production cuts, giving more time to assess the impact of sanctions on Iran and Venezuela on global supplies and prices.

A trio of fires over the weekend have so far failed to spark a rally in product prices, although it’s still unclear whether they’ll impact regional supplies. Friday saw a fire at the P66 plant in Carson, CA, Saturday there was a fire at Exxon’s Baytown facility, and Sunday saw a fire in 2 tanks containing gasoline components at a Deer park terminal facility. The lack of reaction so far in prices may reflect a wait and see attitude by traders skeptical that this will impact supplies, but is also likely a reflection that these facilities aren’t tied directly to the NYMEX contract delivery points in the New York Harbor.

Refined products continue to find strength from planned and unplanned refinery downtime, with numerous reports that plants have been taking advantage of weak margins to start 2019 to front load maintenance for the expected demand surge in the back half of the year ahead of the marine diesel spec changes.

Baker Hughes reported a decline of 1 oil rig last week, marking a 4th straight week drop in the total US count. Texas saw its 10th consecutive decrease as production in the Permian basin continues its gradual slowdown.

Money managers continue to be unenthused by petroleum contracts in 2019. Brent and WTI did see small increases in speculative net length last week, but they remain well below year-ago levels, and towards the bottom end of their 5 year seasonal ranges. RBOB is the only contract seeing above-average speculative bets on higher prices, with managed money net length increasing for the 5th time in 6 weeks. The net short position held by swap dealers in WTI did increase for a 2nd straight week, suggesting producers may be using the recent run-up in prices to begin hedging more of their anticipated production.

The great transition continues as the EIA noted that the US Gulf Coast (PADD 3) became a net exporter of crude oil in the last 2 months of 2018. The Midwest (PADD 2) is now the largest importer owing to Canadian shipments via (mainly) pipeline and rail.

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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.

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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.