Energy Prices Cool, On Track For Sizeable Weekly Gain
Energy prices are taking a breather after a long stretch of consecutive daily gains. Gasoline and diesel prices have moved higher every day so far this week, but are seeing small losses to start Friday’s session, and still have not yet made back all of the losses we saw last week.
Yesterday we saw both energy and equity markets move higher, with many giving credit to a drop in inflation driven in large part to falling gasoline and diesel prices. In other words, let’s celebrate cheaper fuel prices lowering inflation by increasing fuel prices. Brilliant.
The slowdown in inflation has helped push the US dollar to its lowest level in 6 months this week. While the negative correlation between the dollar and energy prices still remains relatively weak compared to what we’ve seen frequently over the years, it has been strengthening over the past two weeks, and may once again exert more influence on daily price moves.
Volatility is on the decline so far in the new year with the VIX approaching its lowest level in 9 months, and the OVX (WTI volatility) reaching its lowest level since last February. It’s hard to say whether this is a sign that 2023 will be a lot less dramatic than 2022, or if we’re just experiencing the calm before the storm.
Today’s pause in the recovery rally could have a coiling spring effect if prices manage to break through their January highs next week, with room on the charts to see more substantial gains in short order. Then again, if the momentum continues to wane, this will be a failed attempt to break out of the range, and the path of least resistance will be a move lower, with another test of the December lows likely as we slog through the winter demand doldrums.
Speaking of which, the storms hammering the west coast this week are expected to move East next week and blanket large parts of the country with cold rain and snow. While not terribly unusual for January, it will provide another reason for drivers to stay off the roads after 2 weeks of warm weather and could dampen some of the optimism we’ve seen at work this week.
The EIA offered a more in depth look at its predictions that gasoline and diesel prices will move lower on average over the next two years. Even though miles traveled was higher in 2022 than 2019, fuel economy improvements have kept gasoline consumption below Pre-COVID levels, and that trend is expected to continue through 2024. Diesel demand is also forecast to be flat in the US, but stronger globally and the increase in refining capacity this year should help keep a lid on prices.Today’s interesting read from the WSJ: Why government intervention in energy markets has reached levels not seen in over 40 years, and what the unintended consequences of those actions may be.
Click here to download a PDF of today's TACenergy Market Talk.
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View AllWeek 48 - US DOE Inventory Recap
The API Reported Gasoline Inventories Dropped By 898,000 Barrels Last Week
Gasoline and oil prices are attempting to rally for a 2nd straight day, a day ahead of the delayed OPEC meeting, while diesel prices are slipping back into the red following Tuesday’s strong showing.
The API reported gasoline inventories dropped by 898,000 barrels last week, crude inventories declined by 817,000 barrels while distillates saw an increase of 2.8 million barrels. Those inventory stats help explain the early increases for RBOB and WTI while ULSD is trading lower. The DOE’s weekly report is due out at its normal time this morning.
A severe storm on the Black Sea is disrupting roughly 2% of the world’s daily oil output and is getting some credit for the bounce in futures, although early reports suggest that this will be a short-lived event.
Chevron reported that its Richmond CA refinery was back online after a power outage Monday night. San Francisco spot diesel basis values rallied more than a dime Tuesday after a big drop on Monday following the news of that refinery being knocked offline.
Just a few days after Scotland’s only refinery announced it would close in 2025, Exxon touted its newest refinery expansion project in the UK Tuesday, with a video detailing how it was ramping up diesel production to reduce imports and possibly allow for SAF production down the road at its Fawley facility.
Ethanol prices continue to slump this week, reaching a 2-year low despite the bounce in gasoline prices as corn values dropped to a 3-year low, and the White House appears to be delaying efforts to shift to E15 in an election year.
Click here to download a PDF of today's TACenergy Market Talk.
Values For Space On Colonial’s Main Gasoline Line Continue To Drop This Week
The petroleum complex continues to search for a price floor with relatively quiet price action this week suggesting some traders are going to wait and see what OPEC and Friends can decide on at their meeting Thursday.
Values for space on Colonial’s main gasoline line continue to drop this week, with trades below 10 cents/gallon after reaching a high north of 18-cents earlier in the month. Softer gasoline prices in New York seems to be driving the slide as the 2 regional refiners who had been down for extended maintenance both return to service. Diesel linespace values continue to hold north of 17-cents/gallon as East Coast stocks are holding at the low end of their seasonal range while Gulf Coast inventories are holding at average levels.
Reversal coming? Yesterday we saw basis values for San Francisco spot diesel plummet to the lowest levels of the year, but then overnight the Chevron refinery in Richmond was forced to shut several units due to a power outage which could cause those differentials to quickly find a bid if the supplier is forced to become a buyer to replace that output.
Money managers continued to reduce the net length held in crude oil contracts, with both Brent and WTI seeing long liquidation and new short positions added last week. Perhaps most notable from the weekly COT report data is that funds are continuing their counter-seasonal bets on higher gasoline prices. The net length held by large speculators for RBOB is now at its highest level since Labor Day, at a time of year when prices tend to drop due to seasonal demand weakness.
Click here to download a PDF of today's TACenergy Market Talk.