Energy Prices Retreat, Weak Economic Data Overshadows Supply Disruptions

Market TalkMonday, Jul 10 2023
Pivotal Week For Price Action

Energy prices are pulling back to start the new week, failing to follow through on the strong finish we saw on Friday that pushed WTI and ULSD prices close to 3-month highs. The early losses seem pegged to more weak economic data overshadowing some disruptions to supply. Financial markets around the globe seem to be facing a similar tug of war as the world’s largest consumer continues to battle inflation, while the 2nd largest economy is facing the opposite concerns

Money managers were getting more bullish on crude oil last week, adding fresh length to Brent contracts, while slashing short bets on both WTI and Brent. The outlook from large speculators is more mixed for refined products with ULSD seeing a tick higher in bets on higher prices, while RBOB and Gasoil contracts both saw a healthy amount of new shorts added betting that prices will move lower. While open interest for crude and products has recovered from last year’s decade lows as the extreme volatility was too risky and costly for many, total outstanding positions remain below levels we saw at any point from 2015-2021.

Baker Hughes reported a net decrease of 5 oil rigs active in the US last week, bringing the total to a fresh 15-month low.  Natural gas drilling saw a big rebound, with a net increase of 11 rigs last week, 7 of which were in Louisiana. That increase in natural gas drilling snapped a 2-month skid that saw 37 rigs taken offline and dropped the total to the lowest since February of last year.

Gasoline basis values on the West Coast continued to rally last week with the 3 major spot markets all trading north of 30 cents/gallon above RBOB futures. Several unplanned refinery hiccups seem to be the driver of the basis rally and yet another unplanned flaring event was reported over the weekend in the LA area. 

On the other end of the spectrum, Chicago-area diesel has plummeted to a discount of 30 cents or more below ULSD futures as the summer demand doldrums in between planting and harvest season coincides with peak refinery runs as facilities try to maximize their gasoline output during the driving season. This phenomenon seems to happen once or twice a year as PADD 2 refiners often enjoy significant discounts for purchasing Canadian crude, so will continue to run the plants hard even though they may be taking losses to clear their extra diesel.

A major fire at a PEMEX oil platform in the Gulf of Mexico Friday killed at least 2 workers, with one still missing, and has shut in approximately 170mb/day of production. 

A vehicle fire at a Kinder Morgan terminal in Pasadena TX does not appear to be impacting operations at the company’s truck loading rack nearby which is one of the busiest racks in the city. 

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

Market Talk Update 07.10.2023

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Pivotal Week For Price Action
Market TalkFriday, Apr 12 2024

Charts Continue To Favor A Push Towards The $3 Mark For Gasoline, While Diesel Prices May Need To Be Dragged Along For The Ride

Energy prices are rallying once again with the expected Iranian attack on Israel over the weekend appearing to be the catalyst for the move. RBOB gasoline futures are leading the way once again, trading up more than a nickel on the day to reach a fresh 7 month high at $2.8280. Charts continue to favor a push towards the $3 mark for gasoline, while diesel prices may need to be dragged along for the ride.

So far it appears that Motiva Pt. Arthur is the only refinery that experienced a noteworthy upset from the storms that swept across the southern half of the country this week. Those storms also delayed the first round of the Masters, which matters more to most traders this week than the refinery upset.

Chevron’s El Segundo refinery in the LA-area reported an unplanned flaring event Thursday, but the big moves once again came from the San Francisco spot market that saw diesel prices rally sharply to 25 cent premiums to futures. The Bay Area now commands the highest prices for spot gasoline and diesel as the conversion of 1 out of the 4 remaining refineries to renewable output is not-surprisingly creating disruptions in the supply chain.

RIN values dropped back below the 50-cent mark, after the recovery rally ran out of steam last week. The EPA is facing numerous legal challenges on the RFS and other policies, and now half of the US states are challenging the agency’s new rule restricting soot emissions. That lack of clarity on what the law actually is or may be is having widespread impacts on environmental credits around the world and makes enforcement of such policies a bit of a joke. Speaking of which, the EPA did just fine a South Carolina company $2.8 million and require that it buy and retire 9 million RINs for improper reporting from 2013-2019. The cost of those RINs now is about 1/3 of what it was this time last year, so slow playing the process definitely appears to have paid off in this case.

The IEA continues to do its best to downplay global demand for petroleum, once again reducing its economic outlook in its Monthly Report even though the EIA and OPEC continue to show growth, and the IEA’s own data shows “Robust” activity in the first quarter of the year. The IEA has come under fire from US lawmakers for changing its priorities from promoting energy security, to becoming a cheerleader for energy transition at the expense of reality.

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

Pivotal Week For Price Action
Market TalkThursday, Apr 11 2024

Diesel Prices Continue To Be The Weak Link In The Energy Chain

Energy prices are ticking modestly lower this morning, despite warnings from the US that an Iranian attack on Israeli interest is “imminent” and reports of weather induced refinery outages, as demand fears seem to be outweighing supply fears temporarily. Diesel prices continue to be the weak link in the energy chain with both the DOE and OPEC reports giving the diesel bears reason to believe lower prices are coming.

The March PPI report showed a lower inflation reading for producers than the Consumer Price Index report, leading to an immediate bounce in equity futures after the big wave of selling we saw yesterday. To put the CPI impact in perspective, a week ago Fed Fund futures were pricing in an 80% chance of an interest rate cut by the FED’s July 31 meeting, and today those odds have shrunk to 40% according to the CME’s FedWatch tool.

OPEC’s monthly oil market report held a steady outlook for economic growth and oil demand from last month’s report, noting the healthy momentum of economic activity in the US. The cartel’s outlook also highlighted significant product stock increases last month that weighed heavily on refining margins, particularly for diesel. Given the US focus on ULSD futures that are deliverable on the East Coast, which continues to have relatively tight supply for diesel, it’s easy to overlook how quickly Asian markets have gotten long on distillates unless of course you’re struggling through the slog of excess supply in numerous west coast markets these days. The OPEC report noted this in a few different ways, including a 33% decline in Chinese product exports as the region simply no longer needs its excess. The cartel’s oil output held steady during March with only small changes among the countries as they hold to their output cut agreements.

If you believe the DOE’s diesel demand estimates, there’s reason to be concerned about domestic consumption after a 2nd straight week of big declines. The current estimate below 3 million barrels/day is something we typically only see the week after Christmas when many businesses shut their doors. We know the DOE’s figures are missing about 5% of total demand due to Renewable Diesel not being included in the weekly stats, and it’s common to see a drop the week after a holiday, but to lose more than a million barrels/day of consumption in just 2 weeks will keep some refiners on edge.

Most PADDs continue to follow their seasonal trends on gasoline with 1 and 2 still in their normal draw down period, while PADD 3 is rebuilding inventories faster than normal following the transition to summer grade products. That rapid influx of inventory in PADD 3 despite robust export activity helps explain the spike in premiums to ship barrels north on Colonial over the past 2 weeks. Gasoline also saw a sizeable drop in its weekly demand estimate, but given the holiday hangover effect, and the fact that it’s in line with the past 2 years, there’s not as much to be concerned about with that figure. While most of the activity happens in PADDs 1-3, the biggest disconnect is coming in PADDs 4 and 5, with gasoline prices in some Colorado markets being sold 50 cents or more below futures, while prices in some California markets are approaching 90 cents above futures.

Severe weather sweeping across the southern US knocked several units offline at Motiva’s Pt Arthur plant (the country’s largest refinery) Wednesday, and it seems likely that Louisiana refineries will see some disruption from the storm that spawned tornadoes close to the Mississippi River refining hub. So far cash markets haven’t reacted much, but they’ll probably need more time to see what damage may have occurred.

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