Energy Markets Are Off To Another Quiet Start Thursday

Market TalkThursday, Nov 3 2022
Pivotal Week For Price Action

Energy markets are off to another quiet start Thursday with modest losses in the early going after some bullish data points from the DOE helped push prices higher on Wednesday.

Stock markets have reacted negatively to the FOMC chair’s press conference Wednesday in which he made it clear that a pivot is not coming and that rates will go higher than previously expected to stomp out inflation. The correlation between daily moves in equity and energy prices has ticked higher in the past couple of weeks so some of that negative outlook seems to be spilling over into the energy arena as well. 

Coastal Extremes: While the East Coast has received plenty of attention for tight diesel supplies (and a particular panicked supplier’s color coding) over the past few weeks, and ULSD basis values in NYH are north of 80 cents over December futures, the West Coast is seeing the opposite phenomenon as diesel basis values plummeted to a 50 cent discount Wednesday.   Less than a month ago we saw LA spots at a 50 cent premium to November futures, that set cash prices above $4.55/gallon vs values around $3.20 this morning. Will we see a similar drop in East Coast values over the next month?

PADD 1 (East Coast) refining rates actually surpassed 100% of nameplate capacity last week, reaching the highest run rates since the PES refinery exploded and shut down in 2019. You may be wondering how refineries can physically run above 100% of capacity, and the simple answer is it’s just like football players giving 110% on every play. Actually, the reason is that when PBF shut units at its Paulsboro refinery at the end of 2020 to try and survive the brutal demand environment that knocked several refineries out of business, 70mb/day of refining capacity was taken off the DOE’s ledger, but hasn’t yet been added back now that those units have restarted.  Given the tight state of supplies in PADD 1, that incremental production could not come at a better time, and helps explain how that particular refiner went from knocking on the door of insolvency 2 years ago, to making more than $1 billion last quarter.

Demand is bad, supply is worse: US gasoline stocks dropped to an 8 year low last week, and soft demand that remains near levels we saw in 2020 may be the only thing preventing widespread outages as a result. 

Total US gasoline imports dropped to their lowest levels of the year, led by a big decline in PADD 1 imports caused by a combination of a temporarily closed arb window from Europe during the French refinery strikes, refinery maintenance at a Canadian refinery that’s a major supplier to the region, and various vessel delays. That drop in imports was a key driver in the various short term outages plaguing terminals across the region in the past few weeks, and if we don’t see a recovery in those imports soon, expect those shortages to continue.   Then again, the next few months are typically the slowest period for imports as US driving demand slows, and gasoline supply increases thanks to the butane blending that’s becoming more prevalent across the country, so we may not see as big of a snap back as we would if this drop had happened 2 months ago.

The diesel import/export flow also continues to have an outsized influence on prices. We did see diesel exports decline last week, and PADD 1 imports start to tick higher in what could be the early wave reacting to the $1/gallon premiums for diesel in the region, both of which helped inventories increase modestly, although days of supply still ticked lower thanks to a healthy increase in the DOE’s demand estimate. Note the drop in PADD 5 diesel imports below as the market reacts just as strongly to the drop in West Coast basis values as it did to the spike in September. The billion dollar question for the months ahead is whether or not the Atlantic basin is capable of that type of a reaction to the high prices in New York. 

Hurricane Lisa made Landfall over Belize Wednesday, and most models now have the storm emerging in the Gulf of Mexico tomorrow after crossing the Yucatan peninsula. Those models don’t currently have the storm redeveloping into a hurricane as it approaches refinery row, but it will need to be watched for another few days. Meanwhile Martin has also reached Hurricane status as it churns through the North Atlantic, far from being a threat to land, and the NHC is tracking two more potential systems off the SE US that are given low odds of being named.

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Market Talk Update 11.03.22

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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.

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

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.