Energy Prices Survived A Big Wave Of Selling Early Monday Morning, And Have Been Rallying Ever Since

Market TalkTuesday, Nov 22 2022
Pivotal Week For Price Action

Energy prices survived a big wave of selling early Monday morning, and have been rallying ever since. Conflicting reports about OPEC’s plans seem to be the main driver of the big swings in prices, with a WSJ report that the cartel was planning to increase output sending prices sharply lower Monday morning, only to see those losses turn to gains after that report was denied.   The sharp rally puts the energy complex into more neutral technical territory after it looked like we were on the verge of a major breakdown in prices this time yesterday.

We’re two weeks away from the latest potential rail strike, which is looking more likely after another union voted to reject that agreement made back in September when the country thought a strike had been avoided. The impact of a strike, if a new deal isn’t reached, or congress doesn’t step in to prevent one, would be far reaching and touch just about every segment of the US economy.  For fuels, the biggest concern is the impact on ethanol supply, which could quickly translate to the gasoline version of water water everywhere nor any drop to drink as blend stocks would be stuck in tank without their mandated alcohol additive.  You may note the irony that the current RFS legislation was born from the claim that ethanol could help protect the country’s fuel supplies in the Energy Independence and Security Act of 2007, only to see that fuel become the potential cause of shortages today. 

Some are also pointing out that the rail strike could make diesel shortages worse, an argument that fails to recognize trains haven’t been powered by steam and coal in about a hundred years, and there would be a big drop in demand if some of the country’s largest diesel consumers stop moving.   There is no doubt that some rail-fed markets would feel a strain on diesel supplies if the strike happened, but the impact of delays in ethanol shipments would be much more widespread, given that rail is the primary delivery option for ethanol, vs a supplemental option for diesel. 

The timing is particularly bad for anyone lobbying congress for even more ethanol blending, which is what the API and RFA have jointly agreed to do, which may mean the E15 parade may continue to be poorly attended.  Perhaps the more meaningful part of this unusual alliance between the big oil and big ag (posing as renewables) lobbies is that they’re pushing for a national set of regulations, vs the state by state approach that creates all sorts of unintended consequences as we see today with the LCFS and Cap & Trade programs creating more demand to burn diesel to send renewables across the country rather than being consumed near where they’re produced. 

Spot markets will be closed Thursday and Friday, although futures will be trading both days, with only a Friday settlement, so rack prices can and will change over the long holiday weekend. Last year we saw a huge Black Friday selloff in futures that will no doubt keep traders on edge through their tryptophan slumbers this week. 

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

Market Talk Update 11.22.22

News & Views

View All
Pivotal Week For Price Action
Market TalkFriday, Apr 19 2024

Gasoline Futures Are Leading The Way Lower This Morning

It was a volatile night for markets around the world as Israel reportedly launched a direct strike against Iran. Many global markets, from equities to currencies to commodities saw big swings as traders initially braced for the worst, then reversed course rapidly once Iran indicated that it was not planning to retaliate. Refined products spiked following the initial reports, with ULSD futures up 11 cents and RBOB up 7 at their highest, only to reverse to losses this morning. Equities saw similar moves in reverse overnight as a flight to safety trade soon gave way to a sigh of relief recovery.

Gasoline futures are leading the way lower this morning, adding to the argument that we may have seen the spring peak in prices a week ago, unless some actual disruption pops up in the coming weeks. The longer term up-trend is still intact and sets a near-term target to the downside roughly 9 cents below current values. ULSD meanwhile is just a nickel away from setting new lows for the year, which would open up a technical trap door for prices to slide another 30 cents as we move towards summer.

A Reuters report this morning suggests that the EPA is ready to announce another temporary waiver of smog-prevention rules that will allow E15 sales this summer as political winds continue to prove stronger than any legitimate environmental agenda. RIN prices had stabilized around 45 cents/RIN for D4 and D6 credits this week and are already trading a penny lower following this report.

Delek’s Big Spring refinery reported maintenance on an FCC unit that would require 3 days of work. That facility, along with several others across TX, have had numerous issues ever since the deep freeze events in 2021 and 2024 did widespread damage. Meanwhile, overnight storms across the Midwest caused at least one terminal to be knocked offline in the St. Louis area, but so far no refinery upsets have been reported.

Meanwhile, in Russia: Refiners are apparently installing anti-drone nets to protect their facilities since apparently their sling shots stopped working.

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

Pivotal Week For Price Action
Market TalkThursday, Apr 18 2024

The Sell-Off Continues In Energy Markets, RBOB Gasoline Futures Are Now Down Nearly 13 Cents In The Past Two Days

The sell-off continues in energy markets. RBOB gasoline futures are now down nearly 13 cents in the past two days, and have fallen 16 cents from a week ago, leading to questions about whether or not we’ve seen the seasonal peak in gasoline prices. ULSD futures are also coming under heavy selling pressure, dropping 15 cents so far this week and are trading at their lowest level since January 3rd.

The drop on the weekly chart certainly takes away the upside momentum for gasoline that still favored a run at the $3 mark just a few days ago, but the longer term up-trend that helped propel a 90-cent increase since mid-December is still intact as long as prices stay above the $2.60 mark for the next week. If diesel prices break below $2.50 there’s a strong possibility that we see another 30 cent price drop in the next couple of weeks.

An unwind of long positions after Iran’s attack on Israel was swatted out of the sky without further escalation (so far anyway) and reports that Russia is resuming refinery runs, both seeming to be contributing factors to the sharp pullback in prices.

Along with the uncertainty about where the next attacks may or may not occur, and if they will have any meaningful impact on supply, come no shortage of rumors about potential SPR releases or how OPEC might respond to the crisis. The only thing that’s certain at this point, is that there’s much more spare capacity for both oil production and refining now than there was 2 years ago, which seems to be helping keep a lid on prices despite so much tension.

In addition, for those that remember the chaos in oil markets 50 years ago sparked by similar events in and around Israel, read this note from the NY Times on why things are different this time around.

The DOE’s weekly status report was largely ignored in the midst of the big sell-off Wednesday, with few noteworthy items in the report.

Diesel demand did see a strong recovery from last week’s throwaway figure that proves the vulnerability of the weekly estimates, particularly the week after a holiday, but that did nothing to slow the sell-off in ULSD futures.

Perhaps the biggest next of the week was that the agency made its seasonal changes to nameplate refining capacity as facilities emerged from their spring maintenance.

PADD 2 saw an increase of 36mb/day, and PADD 3 increased by 72mb/day, both of which set new records for regional capacity. PADD 5 meanwhile continued its slow-motion decline, losing another 30mb/day of capacity as California’s war of attrition against the industry continues. It’s worth noting that given the glacial pace of EIA reporting on the topic, we’re unlikely to see the impact of Rodeo’s conversion in the official numbers until next year.

Speaking of which, if you believe the PADD 5 diesel chart below that suggests the region is running out of the fuel, when in fact there’s an excess in most local markets, you haven’t been paying attention. Gasoline inventories on the West Coast however do appear consistent with reality as less refining output and a lack of resupply options both continue to create headaches for suppliers.

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