Energy Markets Show Modest Gain On Mixed Economic Data, Strong Demand Estimates

Market TalkFriday, Jul 7 2023
Pivotal Week For Price Action

Energy markets are moving modestly higher Friday morning after another whipsaw session Thursday that saw heavy morning losses following a strong payroll report wiped out in the afternoon thanks in part to some strong demand estimates from the DOE.

After another quiet overnight session, refined product prices jumped immediately following the June federal payrolls report this morning, that showed 209,000 jobs added, which was less than half of yesterday’s big estimate from ADP that spooked equity markets. Adding to the bad news is good news theme, downward revisions took away 110,000 jobs from prior estimates. The headline unemployment rate ticked down to 3.6%, but the U-6 rate (aka the real rate) ticked up to 6.9% marking the highest level in a year. 

The DOE’s weekly status report had the highest weekly gasoline demand estimate in nearly 18 months, as the record-setting travel predictions ahead of the 4th of July seem to have come true.  The big question now for refiners wondering how far their margins will fall from last year’s record levels, is how bad the holiday hangover effect will be on demand this year.  The big tick higher in consumption combined with the 4th straight reduction in total refinery runs pushed US gasoline days of inventory on hand to their lowest levels of the year, and below the 5-year seasonal range.

Diesel demand saw a healthy recovery off of last week’s terrible estimate that put consumption back to COVID lockdown levels but remains below average for this time of year. Despite that soft consumption, diesel stocks remain well below average in most PADDs, which is causing some to start worrying about the next supply crunch if the trucking recession soon comes to an end. The contrary argument is that PADD 5 stocks still don’t account for the major influx of Renewable Diesel in the “total diesel” inventories, so the actual stocks on hand are sure to be much higher than shown.  

Crude oil stocks declined last week even though refinery runs dropped, the EIA released more barrels from the SPR, imports increased and exports decreased. How can that be possible?  The adjustment factor dropped by 1.2 million barrels/day, which essentially means there were 8 million barrels of oil taken away from the figures that can’t be accounted for. This large gap in the reporting helps explain why the agency’s total petroleum demand figures are no longer a figure watched closely by the industry.

Colorado State increased its 2023 Atlantic hurricane forecast Thursday and now calls for an above-average season, but also notes larger than normal uncertainty in its outlook. The new forecast calls for 9 hurricanes from 7, and 4 Major storms, up from 3. For the time being the tropics are quiet in the Atlantic basin, with a healthy amount of Saharan dust helping to limit development after a flurry of activity 2 weeks ago.

California reached a deal with truck manufacturers to ease the states zero emissions goals to better align with the EPA’s standards, and reality. CARB also committed to “Providing no less than 4 years of lead time and at least 3 years of regulatory stability before imposing the zero-emissions requirements. Depending on your definition of regulatory stability, that promise may mean those restrictions will never move forward.

Meanwhile, the EPA’s is proposing to change its GHG reporting requirements to close gaps in that process such as methane releases.

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

Market Talk Update 07.07.2023

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Pivotal Week For Price Action
Pivotal Week For Price Action
Market TalkWednesday, Jul 17 2024

Energy Markets Are Trying To Find A Price Floor After Gasoline And Crude Oil Staged A Healthy Bounce To Minimize The Heavy Losses

Energy markets are trying to find a price floor after gasoline and crude oil staged a healthy bounce to minimize the heavy losses we saw early in Tuesday’s session. WTI is leading the move higher early Wednesday, up nearly $.90/barrel in the early going, while RBOB prices are up just under a penny.

Diesel continues to look like the weak link in the energy chain both technically and fundamentally. Tuesday the API reported a 4.9 million barrel build in diesel stocks, while gasoline inventories were only up 365,000 barrels, and crude oil stocks declined by more than 4.4 million barrels. The DOE’s weekly report is due out at its normal time this morning and it’s likely we’ll see a reduction in oil output and PADD 3 refining runs thanks to shut ins ahead of Hurricane Beryl, but otherwise the storm appears to be a relative non-issue with only 1 notable refining hiccup, that wasn’t even as bad as a midwestern Thunderstorm.

Chicago basis values rallied Tuesday after reports that Exxon had shut down the 250mb/day Joliet refinery following severe storms that knocked out power to the area Sunday. RBOB differentials surged nearly 9 cents on the day, while diesel diffs jumped more than a nickel. With 3 large refineries in close proximity, the Chicago cash market is notoriously volatile if any of those facilities has an upset. Back in May there was a one-day spike in gasoline basis of more than 50 cents/gallon after Joliet had an operating upset so don’t be surprised if there are bigger swings this week if the facility doesn’t come back online quickly.

Moving in the opposite direction, California basis values are heading the opposite direction with the transition to August scheduling pressuring CARBOB differentials in LA and San Francisco to their biggest discounts to prompt RBOB futures in more than 18 months. Gasoline imports into PADD 5 have held well above average levels over the past 2 months, which has more than offset the loss of the P66 Rodeo refinery’s output after it completed its conversion to RD production, in another sign of how growing refining capacity in China and other Asian countries may become more influential to the US. California regulators may also pat themselves on the back that their new plans to force refineries to report their gross profit monthly, in addition to the rules requiring all bulk trades in the state be reported must be driving the lower gasoline differentials, assuming they figure out what a basis differential is.

Meanwhile, California’s Carbon Allowance values have tumbled to their lowest levels in a year after a CARB presentation last week suggested the agency would be delaying long-anticipated tightening of the Cap and Trade program until 2026.

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

Pivotal Week For Price Action
Market TalkTuesday, Jul 16 2024

The Sell-Off In Energy Markets Continues, With Refined Products Reaching Their Lowest Levels In A Month Early In Tuesday’s Session

The sell-off in energy markets continues, with refined products reaching their lowest levels in a month early in Tuesday’s session. Reports of slowing growth in China, the world’s largest oil purchaser, is getting much of the credit for the slide in prices so far this week, although that doesn’t do much to explain why refined products are outpacing the drop in crude.

ULSD futures are leading the early move lower, trading down a nickel on the day, and marking a 19 cent drop since July 4th. There’s not much in the way of technical support for ULSD, so don’t be surprised if this sell-off continues to pick up steam.

With today’s slide, RBOB futures are down 17 cents from where they were trading on July 4th, and are just a couple of cents from testing their 200-day moving average. Should that support break, it looks like there’s a good chance to test the June lows around $2.29.

Physical markets are not offering any strength to the futures market with all 6 of the major cash markets for diesel across the US trading at a discount to ULSD futures, while only 1 gasoline market is trading at a premium to RBOB futures. That combination of weakness in futures and cash markets is going to be troubling for refiners who are seeing margins reduce during what is traditionally a strong time of year.

The EIA highlighted the energy trade between the US and Mexico in a report Monday, showing that despite so many claims of energy independence from Mexican officials, the actual amount of refined fuels and natural gas bought from the US continues to increase. That’s good news for many US refiners who have become more dependent on Mexican purchases to find a home for their output.

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