Energy Prices Finally Saw Meaningful Pullback

Market TalkFriday, Oct 5 2018
Energy Prices Finally Saw Meaningful Pullback

Energy prices finally saw a meaningful pullback Thursday for the first time in 3 weeks. The complex was overdue for some selling as many short term technical indicators had moved into overbought territory as prices reached 4-year highs, although sharp drop in US stock markets took credit for some of yesterday’s decline.

While the sell-off knocked energy prices back 3% or more from the highs reached on Wednesday, prices remain in a longer term up-trend, and we’ll need to see at least another $2 taken out of oil prices, and a nickel of losses for refined products before the fall rally comes under real threat of being broken from a chart perspective.

The sell-off in equities has largely been blamed in a sell-off in bond markets, highlighted by a drop in US treasury prices that pushed 10 year treasury yields to their highest level in more than 7 years.

The good news for those that follow the theory that an inverted Treasury yield curve is a sign of a pending recession, is that the 2/10 year treasury curve has been moving lower as the 10 year yield has risen this week. That move is consistent with the idea that good economic data in the US is encouraging the increase in interest rates.

Right on cue, the BLS reported that the unemployment rate dropped to 3.7% in September, its lowest level since 1969. The “U-6” unemployment rate (which some argue is a more meaningful measurement than the “official” rate) dropped from 7.4% to 7.1%.

Today’s interesting read: The IEA published a report that predicts demand for plastic, not motor fuel, will drive global oil demand growth over the next 30 years.

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Pivotal Week For Price Action
Market TalkWednesday, Jun 7 2023

Energy Prices Fluctuate: Chinese Imports Surge, Saudi Arabia Cuts Output and Buys Golf

Energy prices continue their back-and-forth trading, starting Wednesday’s session with modest gains, after a round of selling Tuesday wiped out the Saudi output cut bounce. 

A surge in China’s imports of crude oil and natural gas seem to be the catalyst for the early move higher, even though weak export activity from the world’s largest fuel buyer suggests the global economy is still struggling. 

New tactic?  Saudi Arabia’s plan to voluntarily cut oil production by another 1 million barrels/day failed to sustain a rally in oil prices to start the week, so they bought the PGA tour

The EIA’s monthly Short Term Energy Outlook raised its price forecast for oil, citing the Saudi cuts, and OPEC’s commitment to extend current production restrictions through 2024. The increase in prices comes despite reducing the forecast for US fuel consumption, as GDP growth projections continue to decline from previous estimates. 

The report included a special article on diesel consumption, and its changing relationship with economic activity that does a good job of explaining why diesel prices are $2/gallon cheaper today than they were a year ago.   

The API reported healthy builds in refined product inventories last week, with distillates up 4.5 million barrels while gasoline stocks were up 2.4 million barrels in the wake of Memorial Day. Crude inventories declined by 1.7 million barrels on the week. The DOE’s weekly report is due out at its normal time this morning. 

We’re still waiting on the EPA’s final ruling on the Renewable Fuel Standard for the next few years, which is due a week from today, but another Reuters article suggests that eRINs will not be included in this round of making up the rules.

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Pivotal Week For Price Action
Pivotal Week For Price Action
Market TalkTuesday, Jun 6 2023

Energy Prices Retreat, Global Demand Concerns Loom

So much for that rally. Energy prices have given back all of the gains made following Saudi Arabia’s announcement that it would voluntarily withhold another 1 million barrels/day of oil production starting in July. The pullback appears to be rooted in the ongoing concerns over global demand after a soft PMI report for May while markets start to focus on what the FED will do at its FOMC meeting next week.

The lack of follow through to the upside leaves petroleum futures stuck in neutral technical territory, and since the top end of the recent trading range didn’t break, it seems likely we could see another test of the lower end of the range in the near future.  

RIN prices have dropped sharply in the past few sessions, with traders apparently not waiting on the EPA’s final RFS ruling – due in a week – to liquidate positions. D6 values dropped to their lowest levels in a year Monday, while D4 values hit a 15-month low. In unrelated news, the DOE’s attempt to turn seaweed into biofuels has run into a whale problem.  

Valero reported a process leak at its Three Rivers TX refinery that lasted a fully 24 hours.  That’s the latest in a string of upsets for south Texas refineries over the past month that have kept supplies from San Antonio, Austin and DFW tighter than normal. Citgo Corpus Christi also reported an upset over the weekend at a sulfur recovery unit. Several Corpus facilities have been reporting issues since widespread power outages knocked all of the local plants offline last month.  

Meanwhile, the Marathon Galveston Bay (FKA Texas City) refinery had another issue over the weekend as an oil movement line was found to be leaking underground but does not appear to have impacted refining operations at the facility. Gulf Coast traders don’t seem concerned by any of the latest refinery issues, with basis values holding steady to start the week.

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