Energy Markets Are Continuing To Rally After A Strong Push Higher Wednesday Sent Gasoline Futures To A 6-Month High

Market TalkThursday, Mar 14 2024
Pivotal Week For Price Action

Energy markets are continuing to rally after a strong push higher Wednesday sent gasoline futures to a 6-month high. Yesterday’s news of multiple attacks on Russian refineries had the buyers out early, and the DOE’s weekly status report added a boost to the gasoline rally, even though the report shows that the supply/demand balance is very different by product and by region.

While the DOE’s gasoline headline numbers were quite bullish, and the market reacted accordingly following the report, a look at the inventory charts below suggests we’re really just following the typical pattern of steadily drawing down stocks ahead of the spring RVP change. The DOE’s estimates showed an increase in gasoline demand for a 4th straight week, which keeps consumption right around the 5-year average for this time of year.

The USGC saw a large increase in diesel stocks last week, which helped offset another decline in PADD 3 inventories, which was foreshadowed by weaker diesel basis values over the past week.

Worst to first: After several months of being the cheapest in the country, Chicago ULSD is now tied for the most expensive nationwide as the struggle to bring BP whiting fully back online continues, which helped draw down PADD 2 diesel inventories for a 6th straight week.

While PADD 4 remains a rounding error and doesn’t really impact any futures or spot markets in a meaningful way, there does appear to be a potential diesel containment issue brewing for the Rocky Mountain region, with inventories rapidly approaching record high levels, likely in part due to the influx of renewables on the West Coast taking away one of their outlets. Several of the remaining small refiners in the region have been on the chopping block for years and this latest glut of supply will further complicate their economics.

The IEA increased its oil demand forecast in its monthly report, reluctantly following the lead of the OPEC and EIA monthly estimates, in large part due to the resilience in US economic activity in recent months. The report noted that seaborne oil exports are at an all-time high due to the major shipping disruptions forcing tankers to take longer to make their runs.

Bad news for Citgo? A Reuters report says the first round of bidding in the company’s auction didn’t go as well as hoped (almost as though bidders didn’t want to end up in years of legal battles if awarded) which suggests the courts may have to revamp the sale process that’s been going nowhere for years.

More refinery trouble? 4 different Texas facilities reported upsets to the TCEQ in the past 24 hours. P66 Borger dodged the wildfires last week, but reported 5 different flares were triggered yesterday, suggesting a multi-unit upset that could tighten up supplies stretching from the Panhandle to New Mexico. Meanwhile, Flint Hills Corpus Christi East plant and Exxon Beaumont’s chemical plant both reported brief upsets while Marathon’s Galveston Bay facility made its seemingly obligatory weekly flaring notice.

The recovery rally in RIN values continues, with both D4 and D6 prices trading north of the 50 cent mark Wednesday for the first time in a month. Recovering corn and soybean prices, which are boosting ethanol and bio prices, all seem to be contributing after all of those contracts reached multi-year lows in February.

Trouble in LaLa Land? California Carbon Allowance (CCA) prices fell by the most in 2 years Wednesday after the auction for Washington state’s made-up-carbon-credit program settled at half of the value of the December price auction, amidst concerns that program will be voted out of existence in November. While noteworthy, that drop in CCA prices only reduces the cost/gallon for consumers on the CCA line item fee (don’t call it a tax) by 1.5-2 cents from around 31.5 cents/gallon for California gasoline and 40 cents/diesel Tuesday night to 29 and 38 respectively today. The drop in Washington’s prices will be more dramatic, but since the auction values just posted yesterday, they’ll need another day to hit the racks, with just a 3-4 cent reduction witnessed so far.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.

Market Talk Update 3.14.24

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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