Energy Prices Slipping Into Red

Market TalkMonday, Mar 25 2019
Spring Breakout Rally Recovering From Hangover

Energy prices are slipping into the red to start the week as economic concerns sparked by an inverted treasury yield curve seem to be outweighing supply concerns sparked by the fire that ultimately cut off parts of the US energy industry’s most important waterway.

Friday morning when the fire at a Deer Park TX terminal had been extinguished, it seemed that 4-day fire would quickly become an afterthought. Unfortunately the exact opposite has happened after chemicals at the facility breached a retaining wall, ultimately forcing a closure of parts of the Houston Ship Channel.

It’s still unclear whether this situation has or will force refineries in the area to cut runs, but given the great transition from US as importer to exporter, this situation has as much potential to push some prices lower since they’re temporarily trapped in the US, as it does to send prices higher since crude imports can’t make their way in. That new reality could help explain why prices are dropping today, when for decades any disruption to this major energy artery was a sure way to see prices surge.

Baker Hughes reported 9 more oil rigs were taken offline last week, bringing the total US count to an 11 month low at 824. Texas saw its total rig count drop for an 11th straight week.

Speculators seem to have decided that 4-month highs are a good place to jump on the energy bandwagon, with net long positions held by money managers in WTI seeing their largest weekly increase in 9 months last week, while RBOB net length surged above its 5 year seasonal range. Just as we’ve seen with futures lately, ULSD lagged the move of the other petroleum contracts, with managed funds hovering near a balanced position for distillates. While the speculators may be happy to bet on higher prices, it looks like producers are happy to sell into the rally as the WTI net-shorts held by swap dealers reached a new 4 month high.

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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.