Energy Markets Trying To Move Higher

Market TalkWednesday, Dec 12 2018
Rare Red Day For Energy Markets

Energy markets are trying to move higher for a 2nd day, but still seem to be struggling with setting a definitive price floor as their overnight gains have been eroding this morning. A large decline in US crude oil inventories is taking credit for the move higher overnight while equity markets continue on their trade-induced rollercoaster ride.

The API seemed to surprise many Tuesday afternoon when it was said to report a 10 million barrel draw in US oil inventories last week. Then again, the API showed a 5 million barrel build a week ago while the EIA showed a 7 million barrel decrease, so this week’s move seems explainable as the voluntary industry report catching up with the mandatory government report, and perhaps not an indicator of what we might see from the DOE report this morning. The API also showed a decline of 2.4 million barrels of gasoline last week while distillates increased by 712 thousand barrels.

The EIA offered more insight to last week’s data point showing the US exported more oil and petroleum products than it imported for the first time in around 75 years in a new report this morning. Given the huge swings in the weekly flow of exports and imports to reach that milestone, don’t expect a repeat performance in today’s status report. If China returns as a buyer of US Crude however, that may finally tip the scales to make the US a net exporter on a more regular basis.

Speaking of which, volatility in both equity and energy markets remains high (as displayed by the VIX and OVX chart below) as uncertainty over Trade continues to roil markets depending on the latest headline. Tuesday we saw large early gains in stocks wiped out following reports that a Canadian was arrested in China, in an apparent retaliation for the Chinese executive arrested in Canada last week. Stocks are pointed higher ahead of the open this morning as the US Trader-in-Chief said he would intervene in the latter case if it meant getting a trade deal done with China.

OPEC released its monthly oil market report for December this morning, showing that the cartel’s production held flat last month, as an increase in Saudi Arabian output offset the large declines from Iran. Looking ahead to 2019, the ongoing trend of supply beating expectations while demand growth missing the estimates from earlier in the year seems to be a theme throughout the report, and makes it easier to see how the cartel was able to reach its agreement last week.

Other notable items from the OPEC report:

“Non-OPEC oil supply growth in 2018 is estimated at 2.50 mb/d, an upward revision of 0.19 mb/d from the previous month’s assessment. The US, Canada, Russia and Kazakhstan are expected to be the main growth drivers, while Mexico and Norway are anticipated to show the largest declines…”

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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.