Energy Prices Climb Once Again

Market TalkWednesday, Dec 9 2020
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Energy prices are climbing once again after technical support held up through the attempted sell-offs earlier this week, keeping the bullish trend intact. ULSD futures reached a fresh eight month high overnight, while WTI and Brent are less than $.50/barrel away from doing the same, despite some bearish inventory data and more signs that consumption is ticking lower. 

Some of the early strength is being blamed on ISIS attacking two oil wells in Iraq, a week after they attacked an Iraqi oil refinery. While the output losses from these events are minimal, and don’t move the needle on a national or global level, they are the biggest threat to supply in Iraq since ISIS was largely wiped out three years ago.  

Stock markets are also pointing higher again, after the S&P 500 settled above 3,700 for the first time ever on Tuesday. It appears that equity markets continue to focus more on the optimism for a better 2021 thanks to vaccine rollouts, and less on the struggles that remain over the next several months. The correlation between daily moves in the S&P500 and energy futures is nearing its highest of the year as economic activity and consumption are closely tied together in the race between a COVID vaccine and further shutdowns.

The API reported inventory builds across the barrel last week. Gasoline stocks saw a 6.4 million barrel increase estimated, another sign of the demand slump post-Thanksgiving. Diesel stocks increased by 2.3 million barrels and crude stocks increased by 1.1 million barrels. The DOE’s weekly report is due out at its regular time this morning.

The EIA increased its oil price forecast in the latest Short Term Energy Outlook, owing in large part to the OPEC agreement to limit production increases next year. The report also highlighted the ongoing struggle with refinery margins. For gasoline, it notes that margins have been declining in the U.S. over the past two months, but are still better than crack spreads in Europe and Asian markets. Diesel cracks have recovered over the past two months, but remain well below previous years, and with net exports for diesel dropping sharply, there’s a risk we could see more weakness in the months ahead.

The EIA is also highlighting the declines in energy-related CO2 emissions in the U.S. in both the STEO and a new note published this morning. Emissions had been on the steady decline since 2005 – primarily due to reduced consumption of coal, and stricter fuel standards - and then plummeted this year due to the COVID shutdowns. Expectations are that emissions will rise again in 2021 as activity picks up, but will continue to move modestly lower longer term.

RIN values continue to hold near two-year highs although they did pull back from an early spike in Tuesday’s trade.  Several renewable fuel groups filed an appeal to challenge the EPA’s approval of 31 small refinery waivers to the RFS from 2018.

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Market TalkFriday, May 24 2024

Selling Continues In Energy Markets After Thursday's Reversal Rally Ran Out Of Steam In The Afternoon

The selling continues in energy markets after Thursday’s reversal rally ran out of steam in the afternoon, following the lead of U.S. equity markets which had a big sell-off on the day. Prices haven’t yet fallen below the multi-month lows we saw early last week, but we’re just a couple of cents away from those levels, and the potential technical trapdoor that could lead to sharply lower values over the next couple of weeks.

We did see a brief spike in gasoline futures after the settlement Thursday following reports that Colonial had shut down Line 4 due to an IT issue, but those gains were short-lived as the pipeline was restarted without issue a few hours later. Those who remember the chaos of May 2021 after Colonial was hacked are breathing a sigh of relief, particularly on one of the busiest demand days of the year, while others are no doubt disappointed we won’t get to see the rash of fake photos of people filling up plastic bags with gasoline.

OPEC & Friends (AKA the DoC) announced they’re moving June’s policy meeting to a virtual-only affair, which the market is taking as a signal of the status quo being held on output cuts.

Chicago being Chicago: Tuesday’s 60-cent basis spike was officially wiped out by Thursday afternoon, suggesting the short-lived rally was just short covering in an illiquid market rather than a meaningful supply disruption.

RIN values continued their rally this week, touching a 4-month high at 59 cents/RIN for both D4 and D6 values Thursday. If you believe in technical analysis on something like RINs, you can see a “W” pattern formed on the charts, suggesting a run to the 80-cent range is coming if prices can get above 60. If you are more of a fundamentalist, then you’ll probably think this rally is probably more short-term short-covering by producers of RD who have changed their schedule buying back their RIN hedges for volume they’re no longer planning to produce.

NOAA issued its most aggressive Hurricane forecast ever Thursday, joining numerous other groups that think a La Nina pattern and record warm waters will create more and bigger storms this year. With the activity level seeming to be a foregone conclusion at this point, now it’s all about where those storms hit to know if this busy season will be a huge factor in energy supplies like we saw in 2005, 2008, 2012 and 2017. With the Houston area already being bombarded by floods and deadly wind this year, the refinery row across the U.S. Gulf Coast seems even more vulnerable than normal to the effects of a storm.

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

Pivotal Week For Price Action
Market TalkThursday, May 23 2024

Gasoline Prices Have Finally Found A Bid, Trading Up 3 Cents On The Day

Gasoline prices have finally found a bid, trading up 3 cents on the day after coming within a penny and a quarter of the multi-month lows set last week overnight. ULSD prices are also up a couple of cents in the early going after wiping out the gains they made last week. Both contracts are once again threatening a technical breakdown that could push prices another 20-30 cents lower if the current bounce isn’t sustained.

The EIA’s estimate for gasoline demand surged to a 7-month high last week, capping off a 4th straight week of gains that puts total consumption near the top end of the seasonal range after a very sluggish start to the year. AAA estimates that travel this Memorial Day weekend will approach a 20 year high with nearly 44 million people hitting the roads.

The EIA also published a note this morning showing average US gasoline prices are up 1% from last year, accompanied by a chart showing that average prices are down 7 cents/gallon from this time last year. The spread between retail gasoline prices on the West Coast vs the rest of the country continues to grow and is shown to be over $1.20/gallon thanks to Oregon and Washington’s Californication of their energy policies in recent years.

The EIA still seems to be struggling to figure out its accounting methods for crude oil inventories, with the adjustment factor that’s been creating all sorts of confusion the past couple of years flipping from a negative 200,000 barrels/day last week, to a positive 1.4 million barrels/day this week. You could give the EIA compilation crew a break and say that this reflects just how large and complex the US crude oil supply network is, or you could ask how did they suddenly “find” 10-million barrels of oil that they didn’t see last week.

Refiners are cranking up run rates, exceeding the levels we’ve seen this time of year in either of the past 2 years. Those higher run rates are added to the glut of diesel products that’s hanging over the majority of the country, and pushing rack spreads to levels we haven’t seen since the COVID lockdown in several markets.

The export market for US crude and refined products remains very busy with nearly 10 million barrels shipped out of the country every day. Refinery throughput was 16.2 million barrels/day last week, and more than 6 million barrels/day was exported even though gasoline and diesel exports have stagnated this year. The anticipated tick higher in US diesel exports following the rash of Russian refinery attacks has not materialized, which is no doubt contributing to the negative sentiment for diesel prices over the past month. The busy and growing export market for crude and other products also creates an interesting dynamic as we prepare for a busy hurricane season to kick off in a week as any disruption to infrastructure along the Gulf Coast could limit product going out of the country almost as much as it disrupts products flowing inland.

Basis values for RBOB in Chicago dropped 30 cents Wednesday after Tuesday’s 60 cent spike. It’s still unclear what if any impacts the confirmed fire at Exxon’s Joliet refinery, or the rumored upsets at BP’s Whiting facility have had on actual supply in the region, but the quick pullback suggests this is a flash in the pan rather than the start of a prolonged supply shortage.

Exxon reported a leak at its Beaumont TX Chemical plant, but it appears that upset isn’t impacting the operations at its adjacent refinery.

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