Energy Markets Saw A Huge Bounce Off Of Tuesday’s Early Lows

Market TalkWednesday, Mar 30 2022
Pivotal Week For Price Action

Energy markets saw a huge bounce off of Tuesday’s early lows, as hopes for a de-escalation of the fighting in Ukraine quickly faded and the threats of a recession take a back seat to supply concerns once again.  

After a big move lower that put some contracts near a technical breakdown Tuesday following reports of Russian troops shifting away from Kyiv, some people must have realized that Russia also claimed to have pulled troops back just a few days before invading in February and suddenly those big early losses evaporated heading into the afternoon. 

In addition to the reality that the war in Ukraine is probably a long way from over, European countries made their next moves in their chess match over Russian energy supplies. Poland said it was working to end Russian oil imports by the end of the year, while Germany warned consumers to conserve energy as it may be cut off after refusing to pay for its natural gas supply in rubles.

It’s not just futures markets that are seeing more big swings this week, basis markets around the country are seeing large moves as traders react to rapidly evolving supply realities, refinery upsets and huge swings in calendar spreads. The West Coast continues to see the most dramatic moves, with gasoline differentials completing plummeting 80 cents or more over the past 2 weeks, after rallying 90 cents to start the month.   

The API reported inventory draws across the board again yesterday, with crude oil stocks estimated to drop by 3 million barrels, gasoline down 1.3 million and diesel stocks down 215k for the week.  The DOE’s weekly report is due out at its normal time this morning. Crude output and refinery runs should be watched in today’s report to see if the uptick in drilling activity over recent weeks shows up in increased production – which has been stubbornly stagnant so far in 2022 – while refinery runs will be tested as plants ramp up to meet increasing demand after the big drop in capacity over the past 2 years.  

Speaking of which:  A report Tuesday suggested that after a brief dip due to Omicron, US road traffic volumes have recovered to pre-pandemic levels, just in time for the global supply crunch. The report does estimate that record high retail prices may curb demand this summer, but unless job growth slows, there should still be more increases in demand as we enter the driving season.

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

Market Talk 3.30.22

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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.

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

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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