Energy Prices Are Coming Under Heavy Selling Pressure To Start The Week As China Was Placed On Lockdown

Market TalkMonday, Mar 28 2022
Pivotal Week For Price Action

Energy prices are coming under heavy selling pressure to start the week as the world’s 3rd largest city, home to nearly 30 million people, was placed on lockdown to try and slow the spread of the latest COVID wave. There is also an apparent shift in Russian strategy in Ukraine that some see as the first step towards the eventual de-escalation of the war which may be contributing to the selling.

Despite the pullback in futures, US product markets remain relatively tight, and periodic supply outages at terminals on the East and West coasts still ongoing as international buyers outbid each other for cargoes, throwing a wrench into the supply network. 

The selling has not yet threatened the bullish trend lines on the weekly charts, and we’ll need to see another $4-5 drop in crude and 15-20 cents in refined products before getting too excited about this latest pullback.

Baker Hughes reported a net increase of 7 oil rigs actively drilling in the US last week, with Texas seeing a net increase of 6, and the Permian basin adding 3. The total rig count of 531 is a new 2 year high, as we approach the 2 year anniversary of when the first wave of COVID lockdowns had drillers laying down rigs at a record pace.  While we’ve seen 359 rigs added since drilling activity bottomed out later in 2020, we’re still roughly 350 rigs shy of the 2019 peak, and more than 1,000 rigs less than what we saw before prices crashed in 2014. 

High prices have brought back investor interest in oil and gas production, after years of high finance pretending to go green. That renewed interest shows up in the Dallas FED’s energy survey, with growth accelerating in Q1, even as supply and labor bottlenecks push costs to record highs.   That report also notes that most energy executives in the survey believe capital discipline, not ESG has had more influence on the restrained pace of growth in the past year.

Money managers added to their net length (bets on higher prices) in WTI, Brent, RBOB and Gasoil contracts last week, jumping back on the bandwagon after it appeared safe to say prices found a short term bottom around March 15. The exception last week came in ULSD that saw a 15% decrease in length as new shorts were added and old long positions liquidated after prices had rallied more than $1/gallon from the mid-month low. Those new shorts look pretty smart today, assuming they held on to those positions since Tuesday when the report data was compiled.

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

Market Talk Update 3.28.22

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Pivotal Week For Price Action
Market TalkThursday, Mar 28 2024

Energy Markets Are Ticking Modestly Higher Heading Into The Easter Weekend With Crude Oil Prices Leading The Way Up About $1.25/Barrel Early Thursday Morning

Energy markets are ticking modestly higher heading into the Easter Weekend with crude oil prices leading the way up about $1.25/barrel early Thursday morning, while gasoline prices are up around 2.5 cents and ULSD futures are about a penny.

Today is the last trading day for April HO and RBOB futures, an unusually early expiration due to the month ending on a holiday weekend. None of the pricing agencies will be active tomorrow since the NYMEX and ICE contracts are completely shut, so most rack prices published tonight will carry through Monday.

Gasoline inventories broke from tradition and snapped a 7 week decline as Gulf Coast supplies increased, more than offsetting the declines in PADDs 1, 2 and 5. With gulf coast refiners returning from maintenance and cranking out summer grade gasoline, the race is now officially on to move their excess through the rest of the country before the terminal and retail deadlines in the next two months. While PADD 3 run rates recover, PADD 2 is expected to see rates decline in the coming weeks with 2 Chicago-area refineries scheduled for planned maintenance, just a couple of weeks after BP returned from 7 weeks of unplanned repairs.

Although terminal supplies appear to be ample around the Baltimore area, we have seen linespace values for shipping gasoline on Colonial tick higher in the wake of the tragic bridge collapse as some traders seem to be making a small bet that the lack of supplemental barge resupply may keep inventories tight until the barge traffic can move once again. The only notable threat to refined product supplies is from ethanol barge traffic which will need to be replaced by truck and rail options, but so far that doesn’t seem to be impacting availability at the rack. Colonial did announce that they would delay the closure of its underutilized Baltimore north line segment that was scheduled for April 1 to May 1 out of an “abundance of caution”.

Ethanol inventories reached a 1-year high last week as output continues to hold above the seasonal range as ethanol distillers seem to be betting that expanded use of E15 blends will be enough to offset sluggish gasoline demand. A Bloomberg article this morning also highlights why soybeans are beginning to displace corn in the subsidized food to fuel race.

Flint Hills reported a Tuesday fire at its Corpus Christi West facility Wednesday, although it’s unclear if that event will have a material impact on output after an FCC unit was “stabilized” during the fire. While that facility isn’t connected to Colonial, and thus doesn’t tend to have an impact on USGC spot pricing, it is a key supplier to the San Antonio, Austin and DFW markets, so any downtime may be felt at those racks.

Meanwhile, P66 reported ongoing flaring at its Borger TX refinery due to an unknown cause. That facility narrowly avoided the worst wildfires in state history a few weeks ago but is one of the frequent fliers on the TCEQ program with upsets fairly common in recent years.

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
Pivotal Week For Price Action
Market TalkWednesday, Mar 27 2024

Most Energy Contracts Are Ticking Lower For A 2nd Day After A Trickle Of Selling Picked Up Steam Tuesday

Most energy contracts are ticking lower for a 2nd day after a trickle of selling picked up steam Tuesday. ULSD futures are down a dime from Monday’s highs and RBOB futures are down 7 cents.

Diesel prices continue to look like the weak link in the energy chain, with futures coming within 1 point of their March lows overnight, setting up a test of the December lows around $2.48 if that resistance breaks down. Despite yesterday’s slide, RBOB futures still look bullish on the weekly charts, with a run towards the $3 mark still looking like a strong possibility in the next month or so.

The API reported crude stocks increased by more than 9 million barrels last week, while distillates were up 531,000 and gasoline stocks continued their seasonal decline falling by 4.4 million barrels. The DOE’s weekly report is due out at its normal time this morning.

RIN values have recovered to their highest levels in 2 months around $.59/RIN for D4 and D6 RINs, even though the recovery rally in corn and soybean prices that had helped lift prices off of the 4 year lows set in February has stalled out. Expectations for more biofuel production to be shut in due to weak economics with lower subsidy values seems to be encouraging the tick higher in recent weeks, although prices are still about $1/RIN lower than this time last year.

Reminder that Friday is one of only 3 annual holidays in which the Nymex is completely shut, so no prices will be published, but it’s not a federal holiday in the US so banks will be open.

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