Energy Prices Are Moving Modestly Higher To Start The Week As Equities Try To Find A Bottom After Another Brutal Week Of Selling

Market TalkMonday, May 23 2022
Pivotal Week For Price Action

Energy prices are moving modestly higher to start the week, as equities try to find a bottom after another brutal week of selling, and the world continues to wonder what is worse between a shortage of supply, or the shortage in demand it will eventually bring.  

In the bullish column this morning, Shanghai is in the process of reopening after a multi-month lockdown, and Russia cut off natural gas flows to Finland. Unlike most of Europe, Finland has other options to replace those Russian supplies, which probably goes a long way to explaining the muted reaction to that latest move in the global energy chess match.

Money managers added new longs, and covered old shorts last week, pushing their net length to the highest levels since February. That said, the net length held by the large speculators remains well below the past several years as the big funds seem either afraid of, or prohibited by their risk management departments from, making large wagers on energy prices. 

Refined product open interest ticked higher off of multi-year lows for another week as a return to more tolerable volatility seems to be encouraging some flows back into the ULSD contract. WTI meanwhile saw its OI drop to a new 4.5 year low as volatility and competing products both seem to be taking a toll on the NYMEX contract, especially given the focus on waterborne crude oil this year. 

Maybe they went on Spring Break? After a month of holding near unchanged, Texas led a big jump in active drilling rigs last week, adding 8 rigs in the Permian basin, and accounting for 12 of the 13 new rigs put to work according to Baker Hughes’ weekly count. If the recent 3 week average of 9 rigs/week holds, we could see the rig count reach pre-pandemic levels by the fall. A pair of Rystad energy reports last week suggest it will take 5 years for employment in the oil and gas sector to reach pre-pandemic levels, even as parts of the Permian are on pace to reach record output later this year.  

The EIA this morning highlighted retail diesel prices in New England, which surged north of $6 last week. Now that the NYH diesel bubble finally popped and wholesale prices dropped more than $1/gallon last week relief is on the way for consumers, and retailers will enjoy some incredible margins on the way down. It’s also worth noting that even though NYH spots were trading more than $1 above California levels during the price spike, retail prices along the East Coast were still trading below those on the West Coast.

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Market Talk 5.23.22

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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.

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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