Energy Prices Are Attempting To Bounce After A Heavy Round Of Selling Tuesday

Market TalkWednesday, Dec 13 2023
Pivotal Week For Price Action

Energy prices are attempting to bounce after a heavy round of selling Tuesday led to a fresh round of multi-month lows across the petroleum complex. RBOB gasoline futures reached a 2 year low at 1.9672 overnight before finding a modest bid this morning. ULSD futures dropped a dime to reach a new 5 month low, but we did see a recovery in basis values across several markets that tempered the losses. 

The losses for diesel prices coincide with a big selloff in natural gas prices in Europe and the US, as forecasts suggest moderate winter weather will continue to keep a lid on heating demand.  

The EIA lowered its price forecasts for energy contracts next year in its latest monthly Short Term Energy Outlook, citing a slowdown in demand growth and ample spare production capacity from OPEC and others for keeping a lid on prices. The forecasts do suggest that gasoline and diesel inventories will remain on the low end of their seasonal ranges through 2024.

OPEC held both of its supply and demand estimates steady for 2024 in its latest Monthly Oil Market Report. The report also noted the weaker refining margins in the US and Europe but noted that China’s suppression of exports has allowed Asian refining margins recover somewhat from their distressed levels. The cartel’s oil production dipped slightly in November, as declines in Iraq, Angola, and Nigeria offset increases from Venezuela, Libya and Kuwait. One interesting note from the OPEC report: Tanker costs for clean products had a big divergence with rates for shipping West of the Suez canal (aka the Atlantic basin) surging 28%, while rates East of the Suez declined by 24%.  Many factors are likely playing into those different price movements, with the Panama Canal delays, Red Sea ship attacks and slowdown in Chinese exports all probably contributing.

The API reported a large build in gasoline stocks of 5.8 million barrels last week, while distillates had a small increase of 300,000 barrels and crude oil inventories declined by 2.3 million barrels. The DOE’s weekly report is due out at its normal time this morning.

The White House is expected to provide more guidance this week on whether or not the treasury will support making “sustainable” aviation fuel from ethanol, in what may be a game changer for the renewable fuel industry, even though the official rules on subsidies likely won’t be finished for some time, and like the rest of the RFS will probably face legal challenges for years.

The FOMC will make its latest announcement at 1pm central, with no change in interest rates expected today based on the CME’s Fedwatch tool. The market is fairly split on the FED’s plans for next year with a 45% probability of at least 1 rate cut by March, and 80% odds of a full percentage point decrease by this time next year priced into futures.  Any indication that the FOMC isn’t preparing to cut is sure to throw cold water on financial markets but may not impact energy as much given the weak correlations of late.

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

Market Talk Update 12.13.2023

News & Views

View All
Market Talk Updates - Social Header
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.

Market Talk Updates - Social Header
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