Energy Markets Are Ticking Lower This Morning After Reaching 2-Month Highs To End Last Week

Market TalkMonday, Jan 29 2024
Pivotal Week For Price Action

Energy markets are ticking lower this morning after reaching 2-month highs to end last week. The breakthrough to the upside last week leaves the door open for higher prices in the week’s ahead, even though moves lower like we’re seeing this morning are necessary to correct the short-term overbought condition on some charts. 

Friday’s session was highlighted by early weakness turning into more afternoon gains following reports that a tanker operated by Trafigura carrying Russian naphtha was hit by a Houthi missile, and a US destroyer shot down another missile shortly thereafter. That targeting of tanker with Russian fuel aboard marked a potential paradigm shift for the tanker industry that had largely shrugged off the attacks, particularly with Russian fuel making up the majority of southbound tanker traffic through the Suez Canal.

While that new attack risks higher prices near term, it could also help to bring about a long term resolution as Iran’s proxies are turning the country into an international pariah, with China, Russia and the US all now having a vested interest in stopping the attacks on shipping even if their other interests are not aligned.

Buyers jumped back in when trading resumed Sunday night following the attacks on a US military outpost in Jordan that killed 3 and injured dozens more, but those gains didn’t last long as the market continues to discount the threat to physical supplies despite the continuous ramping up of violence in the region.

The White House on Friday announced a pause in the permitting process for new LNG export facilities. 

A WSJ article over the weekend argues why this policy is actually worse for the environment, and the chart below from FERC data of existing projects shows why it’s probably nothing more than a political stunt in an election year with capacity set to more than double in the next few years via projects already approved and under construction, while even more projects are already approved.

Money managers continue to be conflicted in their energy contract positioning, with large speculators reducing their net length in ULSD and Brent contracts last week, while increasing their bets on higher WTI, RBOB and Gasoil prices.  A large wave of short covering in WTI was perhaps the most notable change on the week as the big bettors seemed to throw in the towel on getting lower US crude values after WTI touched a 2-month high.

Baker Hughes reported a net increase of 2 oil rigs working in the US last week, while natural gas rigs decreased by 1. 

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Market Talk Update 1.29.24

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Market TalkFriday, Jul 19 2024

Summertime-Friday-Apathy Trade Influencing Energy Markets

Energy markets are treading water to start the day as the Summertime-Friday-Apathy trade seems to be influencing markets around the world in the early going. RBOB futures are trying for a 3rd straight day of gains to wipe out the losses we saw to start the week, while ULSD futures continue to look like the weak link, trading lower for a 2nd day and down nearly 3 cents for the week.

Bad to worse: Exxon’s Joliet refinery remains offline with reports that repairs may take through the end of the month. On top of that long delay in restoring power to the facility, ENT reported this morning that the facility has leaked hydrogen fluoride acid gas, which is a dangerous and controversial chemical used in alkylation units. Chicago basis values continue to rally because of the extended downtime, with RBOB differentials approaching a 50-cent premium to futures, which sets wholesale prices just below the $3 mark, while ULSD has gone from the weakest in the country a month ago to the strongest today. In a sign of how soft the diesel market is over most of the US, however, the premium commanded in a distressed market is still only 2 cents above prompt futures.

The 135mb Calcasieu Refinery near Lake Charles LA has been taken offline this morning after a nearby power substation went out, and early reports suggest repairs will take about a week. There is no word yet if that power substation issue has any impacts on the nearby Citgo Lake Charles or P66 Westlake refineries.

Two tanker ships collided and caught fire off the coast of Singapore this morning. One ship was a VLCC which is the largest tanker in the world capable of carrying around 2 million barrels. The other was a smaller ship carrying “only” 300,000 barrels (roughly 12 million gallons) of naphtha. The area is known for vessels in the “dark fleet” swapping products offshore to avoid sanctions, so a collision isn’t too surprising as the vessels regularly come alongside one another, and this shouldn’t disrupt other ships from transiting the area.

That’s (not) a surprise: European auditors have determined the bloc’s green hydrogen goals are unattainable despite billions of dollars of investment, and are based on “political will” rather than analysis. Also (not) surprising, the ambitious plans to build a “next-gen” hydrogen-powered refinery near Tulsa have been delayed.

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Market TalkThursday, Jul 18 2024

Refined Products Stanch Bleeding Despite Inventory Builds And Demand Slump

Refined products are trading slightly lower to start Thursday after they stopped the bleeding in Wednesday’s session, bouncing more than 2 cents on the day for both RBOB and ULSD, despite healthy inventory builds reported by the DOE along with a large slump in gasoline demand.

Refinery runs are still above average across the board but were pulled in PADD 3 due to the short-term impacts of Beryl. The Gulf Coast region is still outpacing the previous two years and sitting at the top end of its 5-year range as refiners in the region play an interesting game of chicken with margins, betting that someone else’s facility will end up being forced to cut rates before theirs.

Speaking of which, Exxon Joliet was reportedly still offline for a 3rd straight day following weekend thunderstorms that disrupted power to the area. Chicago RBOB basis jumped by another dime during Wednesday’s session as a result of that downtime. Still, that move is fairly pedestrian (so far) in comparison to some of the wild swings we’ve come to expect from the Windy City. IIR via Reuters reports that the facility will be offline for a week.

LA CARBOB differentials are moving in the opposite direction meanwhile as some unlucky seller(s) appear to be stuck long and wrong as gasoline stocks in PADD 5 reach their highest level since February, and held above the 5-year seasonal range for a 4th consecutive week. The 30-cent discount to August RBOB marks the biggest discount to futures since 2022.

The EIA Wednesday also highlighted its forecast for rapid growth in “Other” biofuels production like SAF and Renewable Naptha and Propane, as those producers capable of making SAF instead of RD can add an additional $.75/gallon of federal credits when the Clean Fuels Producer’s Credit takes hold next year. The agency doesn’t break out the products between the various “Other” renewable fuels, but the total projected output of 50 mb/day would amount to roughly 2% of total Jet Fuel production if it was all turned to SAF, which of course it won’t as the other products come along for the ride similar to traditional refining processes.

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

Pivotal Week For Price Action