Energy Futures Up Modestly After Diesel Prices Touch Pre-War Lows

Market TalkMonday, Feb 6 2023
Pivotal Week For Price Action

Diesel futures touched their lowest prices since before Russia’s invasion of Ukraine overnight before seeing a modest bounce of a couple cents this morning. The low trade at $2.7609 less than two weeks after the March HO contract hit a high of $3.58 fulfilled the technical target made when the chart support failed to hold last week and sets up a potential drop to the $2.50 range in the next few weeks if buyers don’t step in at these levels. 

While the drop in diesel futures has been eye-opening, it still hasn’t been confirmed in US Cash Markets, or by RBOB and WTI contracts that are all still trading well off their December lows. That lack of confirmation from the other contracts suggests the past two weeks have been more about diesel prices normalizing after an incredibly strong year more than a complete market collapse due to fear of a global economic slowdown.

We didn’t get to see the reaction by large speculators to the melt-down that came right after they’d increased their bets on higher prices, as the CFTC was forced to delay publication of its weekly Commitments of Traders report due to a Russian-linked ransomware attack at ION Derivatives, a UK-based service provider that processes transactions and submits trading data to the agency. It appears that the attack may be disrupting trading in some ETF derivatives but is not directly impacted trading on any NYMEX or ICE Commodity futures or options.

The official embargo on Russian diesel exports took effect Sunday, without much fanfare as Western buyers had months to stock up ahead of time and flows of product to the East seem to be ramping up well. A Bloomberg note over the weekend highlighted the increasing role India is playing in turning Russian crude and unfinished fuel oil into gasoline and diesel destined for the US and Europe.

Motiva’s Port Arthur Refinery reported an incident over the weekend that disrupted operations at one of its coker units. The event caused flaring for around 5 hours, but at this point it does not appear that run rates were reduced because of it. 

The IEA’s director over the weekend said the potential rebound in demand from China may force producers to reconsider their output policies this year, implying that OPEC would need to end its voluntary restrictions to meet the increased consumption. 

US oil producers aren’t acting like they got that memo, with Baker Hughes reporting a decline of 10 oil rigs and 2 natural gas rigs in the US last week, bringing the total count to a 4-month low. The declines were spread out fairly evenly across the drilling geography suggesting this wasn’t an isolated even caused by the winter storms.

The huge earthquake that killed more than 1,000 people in Turkey also temporarily halted operations at a major crude oil pipeline system that delivers oil from origin points in the Caspian Sea and Iraq to the Mediterranean.  It appears that major damage was avoided to the pipeline, so shipping should be able to resume shortly. Syria was forced to shut its largest refinery after the quake, but given that facility is only 130mb/day, and it’s in Syria, it’s not going to have much impact on markets elsewhere.

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Market Talk Update 02.06.2023

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Pivotal Week For Price Action
Market TalkThursday, Feb 29 2024

It's Another Mixed Start For Energy Futures This Morning After Refined Products Saw Some Heavy Selling Wednesday

It's another mixed start for energy futures this morning after refined products saw some heavy selling Wednesday. Both gasoline and diesel prices dropped 7.5-8.5 cents yesterday despite a rather mundane inventory report. The larger-than-expected build in crude oil inventories (+4.2 million barrels) was the only headline value of note, netting WTI futures a paltry 6-cent per barrel gain on the day.

The energy markets seem to be holding their breath for this morning’s release of the Personal Consumption Expenditures (PCE) data from the Bureau of Economic Analysis (BEA). The price index is the Fed’s preferred inflation monitor and has the potential to impact how the central bank moves forward with interest rates.

Nationwide refinery runs are still below their 5-year average with utilization across all PADDs well below 90%. While PADD 3 production crossed its 5-year average, it’s important to note that measure includes the “Snovid” shutdown of 2021 and throughput is still below the previous two years with utilization at 81%.

We will have to wait until next week to see if the FCC and SRU shutdowns at Flint Hills’ Corpus Christi refinery will have a material impact on the regions refining totals. Detail on the filing can be found on the Texas Commission on Environmental Quality website.

Update: the PCE data shows a decrease in US inflation to 2.4%, increasing the likelihood of a rate cut later this year. Energy futures continue drifting, unfazed.

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
Pivotal Week For Price Action
Market TalkWednesday, Feb 28 2024

It’s Red Across The Board For Energy Prices So Far This Morning With The ‘Big Three’ Contracts All Trading Lower To Start The Day

It’s red across the board for energy prices so far this morning with the ‘big three’ contracts (RBOB, HO, WTI) all trading lower to start the day. Headlines are pointing to the rise in crude oil inventories as the reason for this morning’s pullback, but refined product futures are leading the way lower, each trading down 1% so far, while the crude oil benchmark is only down around .3%.

The American Petroleum Institute published their national inventory figures yesterday afternoon, estimating an 8+ million-barrel build in crude oil inventory across the country. Gasoline and diesel stocks are estimated to have dropped by 3.2 and .5 million barrels last week, respectively. The official report from the Department of Energy is due out at its regular time this morning (9:30 CST).

OPEC’n’friends are rumored to be considering extending their voluntary production cuts into Q2 of this year in an effort to buoy market prices. These output reductions, reaching back to late 2022, are aimed at paring back global supply by about 2.2 million barrels per day and maintaining a price floor. On the flip side, knowledge of the suspended-yet-available production capacity and record US output is keeping a lid on prices.

How long can they keep it up? While the cartel’s de facto leader (Saudi Arabia) may be financially robust enough to sustain itself through reduced output indefinitely, that isn’t the case for other member countries. Late last year Angola announced it will be leaving OPEC, freeing itself to produce and market its oil as it wishes. This marks the fourth membership suspension over the past decade (Indonesia 2016, Qatar 2019, Ecuador 2020).

The spot price for Henry Hub natural gas hit a record low, exchanging hands for an average of $1.50 per MMBtu yesterday. A rise in production over the course of 2023 and above average temperatures this winter have pressured the benchmark to a price not seen in its 27-year history, much to Russia’s chagrin.

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