Energy Prices Are Down So Far To Start The Week’s Final Trading Session

Market TalkFriday, Oct 21 2022
Pivotal Week For Price Action

Energy prices are down so far to start the week’s final trading session with prompt month ULSD leading the way lower, showing a loss of nearly 2% in early morning trading. Gasoline and crude oil futures are following suit, but only just, trading on the red side of flat, as the market tackles the opposing fundamentals of the potential return of Chinese demand and sustained inflation concerns.

While the bulk of the sanctions levied against Russian oil sales have yet to take effect, the US Treasury Department has said that Moscow’s ability to avoid 80-90% of the restrictions placed on its oil exports is “not unreasonable”. While Russia maintains enough vessels in what some are calling its “Shadow Fleet” to skirt the impending sanctions, issues surrounding the age of its ships and the cost of self-insuring the boats and their cargo has G7 optimistic that Russian oil exports will be sold at a de facto price cap over time.

The prompt month HO calendar spread is continuing to drop as October progresses, with the difference between November and December contracts falling to “only” 22 ½ cents. The steep backwardation, which reached as high as 40 cents this month, continues to wreak havoc in the basis markets, with some trading at steep discounts (San Francisco CARB ULSD trading 52 cents below the screen) while others remain at astronomical premiums (New York Harbor valued at 75 cents over the NYMEX).

Premiums for shipping space on the United States’ largest pipeline spiked yesterday with shippers clamoring to capitalize on the difference in price between refined products in Houston and those in New York. Colonial’s Line 1, which transports gasoline, traded hands 7.5 cents above the pipeline tariff while Line 2, used for shipping distillates, went for 3.5 cents over costs. While the premiums pale in comparison to how much shippers paid for gasoline linespace back in August, the pop in value for both types of product accentuates the tight supply environment the Atlantic seaboard is experiencing.

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Marke Talk Update 10.21.2022

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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.