Energy Markets Rally As Saudi-Russia Production Cuts Extend

Market TalkFriday, Aug 4 2023
Pivotal Week For Price Action

Oil and diesel futures are poised for a 6th straight week of gains after some whipsaw price action over the past couple of days.

ULSD futures saw a 12-cent intraday reversal lower Wednesday - that ruined a run at 12 consecutive increases – followed by a 13 cent bounce off of their lows Thursday to set a new 6 month high. The double reversal puts the bulls back in the driver seat with weekly charts suggesting a run towards $3.50 could be coming soon. 

Saudi Arabia and Russia both announced they would extend their voluntary production cuts yesterday, which helped give WTI and Brent a boost, even though the Russians reduced the amount they are keeping off the market. Ukraine seems to want to help the Russians involuntarily reduce their export volume taking aim at a major Black Sea port overnight

After being the weak link in the energy chain for much of the week, RBOB futures have decided to join in on the bull run fun and are leading the complex higher this morning with nickel gains for the prompt September contract.

Back to school squeeze? Gasoline spreads are getting interesting once again as we wind down the last weeks of summer the Sep/Oct (U/V) RBOB futures contracts (AKA the “sunburn spread”) have widened out to an almost 25 cent premium for the remaining summer-grade RVP grade, which is roughly double what we’ve come to expect with that annual transition. West Coast spot are seeing even more dramatic moves with San Francisco CARBOB trading up close to a 50-cent premium to summer-grade futures and LA approaching a 40-cent premium, despite the new laws from the governor of California that now require refiners to report their trading activity on a daily basis that were put into place following last year’s RVP transition-related price spike.

Time for reform? A pair of reformer-unit upsets at Gulf Coast refineries seems to be a contributor to the relative strength in gasoline prices so far today. Exxon’s Baytown facility reported a hydro-former unit had a leak yesterday, but noted it had a “minimal impact to production” in its regulatory filing. Total was forced to shut a unit at its Port Arthur refinery after a pump leak that lasted 11 hours, which will most certainly have more than a minimal impact to production.

PBF joined the growing list of new Renewable Diesel producers, reporting during an earnings release Thursday that output at its St. Bernard (parish, not the dog) JV production facility co-located at its Chalmette LA refinery came online in July. The company’s operations followed the theme of most refiners in Q2, with margins notably lower from the record-setting quarter a year ago, but still above average despite lackluster demand as inventories remain relatively tight across the country.

Slowing down? The July payroll report estimated 187,000 jobs added last month, while the May and June estimates were revised lower by a combined 49,000 jobs. The headline unemployment rate ticked down a tenth to 3.5%, while the less-manipulated U-6 unemployment rate ticked down 2 tenths to 6.7%. The market reaction was muted to the report as it probably isn’t good or bad enough to change the FED’s plan of action on interest rates.

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

Market Talk Update 08.04.2023

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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