Energy Prices Are Moving Lower In The Early Going Friday After A Strong Week

Market TalkFriday, Aug 12 2022
Pivotal Week For Price Action

Energy prices are moving lower in the early going Friday after a strong week in which fear of inflation and slowing demand both eased, while fears of supply disruptions returned. From a chart perspective, gasoline and diesel prices have returned into more neutral territory after failing to break near term resistance and are set up for another period of back and forth action – just like we saw yesterday with ULSD experiencing multiple 10 cent moves on the day.

The IEA disagreed with OPEC’s estimates for declining global fuel demand Wednesday, raising its oil consumption estimates, with consumers switching to oil-based products to supplement the electricity grid during the summer heat wave (and tight natural gas supplies) driving the increase and masking the “…relative weakness in other sectors…”. Of course, it’s typically not crude oil that’s being used to supplement electricity supplies, it’s some form of diesel whether it be known as Gasoil, fuel oil etc. which explains why we’ve seen ULSD prices react to movements in natural gas prices, while gasoline prices tend to go their own way. 

The IEA increased its forecast for Russian oil output as buyers in some parts of the world are getting awfully creative to find ways around sanctions. Read here for an interesting story on a big gamble on old ships to carry out dangerous ship to ship transfers of Russian crude.  Never doubt the ingenuity of an oil trader.

The IEA’s monthly report ended with a word of caution:  “…with supply increasingly at risk to disruptions, another price rally cannot be excluded.” Read this Reuters note for more specifics on why European distillates are particularly vulnerable.

Speaking of disruptions, the storm system moving across the Atlantic didn’t turn into anything this week and the only other system on the NHC’s watch list is given just 10% odds of developing off the coast of Texas and Louisiana, although it is expected to bring heavy rains to the region over the weekend.    We’re getting to the time of year where we can expect waves to move off the African coast every few days, and each of those waves has the chance to become a hurricane. Where those storms head will likely determine if this season is a nuisance or a disaster for energy supplies, with early forecasts suggesting Florida may be the storm magnet this year, which would be bade news for retirees, but good news for suppliers compared to the past 2 years of Louisiana landfalls that pummeled refinery row.

There are all sorts of new energy-related incentives in the new bill moving through congress. While electric vehicle incentives are capturing much of the attention, a lack of domestic battery production may limit the impact of those plans. Meanwhile, residential heat pumps may become the hot new item and lower carbon cement could end up making a larger impact on emissions than the slow moving changes in the transportation sector.  

Massachusetts is jumping on the congressional climate bandwagon, passing a new bill this week that would join the California dream of banning sales of new gasoline and diesel powered vehicles in 2035, and designate some cities as fossil fuel free and ban natural gas in new construction. This comes just a few months after the state backed out of the proposed Transportation and Climate initiative that would have enforced a cap and trade style program on fuel suppliers. 

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

Market Talk Update 08.12.22

News & Views

View All
Pivotal Week For Price Action
Market TalkFriday, Feb 23 2024

The DOE Report Sparked A Solid Rally In Energy Futures Thursday, But That Upward Momentum Proved Short-Lived

The DOE report sparked a solid rally in energy futures Thursday, but that upward momentum proved short-lived as prices gave back those gains overnight, despite US equity markets surging to all-time highs.

The weekly inventory report showed US refiners are struggling to come back online from a busy maintenance season that was further complicated by January’s cold snap and the unexpected shut down at BP Whiting. Refinery utilization held near 80% on the week, which helped pull gasoline inventories lower despite sluggish demand and a surge in imports along the East Coast. Diesel demand showed a big recovery from last week’s ugly estimate, and when you factor in the missing 4-5% that doesn’t show up due to RD not being included in the reports, actual consumption looks much healthier than the report suggests.

Based on reports of restarts at several major refineries this week, we should see those utilization numbers pick up in next week’s report.

The EPA Thursday approved year-round E15 sales in 8 corn-growing states, despite the fact that the extra ethanol blends have been shown more to pollute more in the warm times of the year. The effective date was pushed back a year however in a show of election-year tight rope walking, which the EPA couched as ensuring that the move wouldn’t lead to a spike in fuel prices this summer.

Of course, the law of unintended consequences may soon be at play in a region that tends to be long gasoline supply for large parts of the year. Removing 5% of the gasoline demand could be another nail in some of the smaller/less complex refineries’ coffins, which would of course make fuel supply less secure, which contradicts one of the main arguments for making more 198 proof grain alcohol and selling it as fuel. Ethanol prices meanwhile continue to slump to multi-year lows this week as low corn prices continue to push unusually high production, and the delayed effective date of this ruling won’t help that.

While Nvidia’s chip mania is getting much of the credit for the surge in equity prices this week, there was also good news for many more companies in reports that the SEC was planning to drop its requirements on Scope 3 emissions reporting which is particularly useful since most people still can’t figure out what exactly scope 3 emissions really are.

In today’s segment of you can’t make this stuff up: The case of chivalry gone wrong with the BP/TA acquisition, and a ketchup caddy company caught spoofing electric capacity.


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 TalkThursday, Feb 22 2024

RBOB And ULSD Futures Down Around 2.5 Cents After A Mixed Performance Wednesday

Refined products are leading the energy complex lower to start Thursday’s trading with both RBOB and ULSD futures down around 2.5 cents after a mixed performance Wednesday.

The API reported another large build in crude oil inventories last week, with inventories up more than 7 million barrels while gasoline inventories increased by 415,000 barrels and diesel stocks dropped by 2.9 million. The crude oil build was no doubt aided once again by the shutdown of BP’s Whiting refinery that takes nearly ½ million barrels/day of oil demand out of the market. That facility is said to be ramping up operations this week, while full run rates aren’t expected again until March. The DOE’s weekly report will be out at 11am eastern this morning.

Too much or not enough? Tuesday there were reports that the KM pipeline system in California was forced to shut down two-line segments and cut batches in a third due to a lack of storage capacity as heavy rains have sapped demand in the region. Wednesday there were new reports that some products ran out of renewable diesel because of those pipeline delays, bringing back memories of the early COVID lockdown days when an excess of gasoline caused numerous outages of diesel.

The Panama Canal Authority has announced $8.5 billion in sustainability investments planned for the next 5 years. Most of those funds are aimed at sustainability efforts like modernizing equipment and installing solar panels, while around $2 billion is intended for a better water management system to combat the challenges they’ve faced with lower water levels restricting transit by 50% or more in the past year. More importantly in the near term, forecasts for the end of the El Nino pattern that contributed to a record drought, and the beginning of a La Nina pattern that tends to bring more rain to the region are expected to help improve water levels starting this summer.

The bad news is that La Nina pattern, coupled with historically warm water temperature has Accuweather forecasters sounding “Alarm Bells” over a “supercharged” hurricane season this year. Other years with a similar La Nina were 2005 which produced Katrina, Rita and Wilma and 2020 when we ran out of names, and the gulf Coast was repeatedly pummeled but markets didn’t react much due to the COVID demand slump. Perhaps most concerning for the refining industry is that unlike the past couple of years when Florida had the bullseye, the Texas coast is forecast to be at higher risk this year.

RIN prices continued their slide Wednesday morning, trading down to 38 cents/RIN before finally finding a bid that pushed values back to the 41-42 cent range by the end of the day.

The huge slide in RIN values showed up as a benefit in Suncor’s Q4 earnings report this morning, as the Renewable Volume Obligation for the company dropped to $4.75/barrel vs $8.55/barrel in Q4 of 2022. Based on the continued drop so far in 2024, expect that obligation to be nearly cut in half again. Suncor continued the trend of pretty much every other refiner this quarter, showing a dramatic drop in margins from the record-setting levels in 2022, but unlike a few of its counterparts over the past week was able to maintain positive earnings. The company noted an increase in refining runs after recovering from the Christmas Eve blizzard in 2022 that took down its Denver facility for months but did not mention any of the environmental challenges that facility is facing.

Valero’s McKee refinery reported a flaring event Wednesday that impacted multiple unites and lasted almost 24 hours. Meanwhile, Total reported more flaring at its Pt Arthur facility as that plant continues to struggle through restart after being knocked offline by the January deep freeze.

Speaking of which, the US Chemical Safety board released an update on its investigation into the fire at Marathon’s Martinez CA renewable diesel plant last November, noting how the complications of start -up leave refineries of all types vulnerable.

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