Energy Prices Were On The Move Higher To Start Wednesday’s Trading

Market TalkWednesday, Jun 8 2022
Pivotal Week For Price Action

Energy prices were on the move higher to start Wednesday’s trading despite increases in weekly inventory levels after another attempted sell-off proved short lived, and buyers seem to be quite content to buy the dip. 

A late day rally cut Tuesday’s losses dramatically, with RBOB bouncing 10 cents off of its low for the day, while ULSD rallied by 7 cents. Despite that big bounce, which managed to keep the bullish trend comfortably intact, ULSD prices did snap their 10 session winning streak that had added a casual 66 cents to prices over the past 2 weeks.

The EIA’s monthly Short Term Energy Outlook followed the pattern of several major bank reports in the past week, raising its forecast for energy prices for the next year due to the ongoing fallout over Russia’s invasion of Ukraine, even though the forecast suggests global oil supplies should outpace demand in each of the next 6 quarters. 

The report predicts that Russian oil output will drop 2 million barrels/day over the coming year from 11 to 9 million, while US output will increase from 11 million to 13 million by the end of 2023.  The report also highlights the drop in operable US refining capacity over the past 2 years, as a harsh reminder that this isn’t so much a global lack of oil, it’s more a shortage of transportation and refining capabilities. See the notes and charts below.

The API reported inventory builds across the board last week with US crude and gasoline stocks each up 1.8 million barrels, while distillates increased by 3.3 million. The DOE’s version of the weekly stats is due out at its normal time this morning.

Excuse me: New efforts to curb carbon emissions this week include New Zealand putting a pricing mechanism on sheep and cow burps and a Wisconsin fuel marketer shipping processed cow waste to California. (insert Texans making a “is that why they’re all moving here?” joke) Meanwhile, as new and more creative ways to take advantage of California’s Low Carbon Fuel standard emerge, that market-based program is seeing the value of its credits plummet to 5 year lows.

STEO NOTES:

Open Interest: The STEO also noted the dramatic drop in open interest for energy contracts, stating that, “Fewer futures contracts held by these traders suggest some producers or end users could be reducing their hedging activity, in part, because higher commodity prices and higher volatility are likely making it more expensive to hedge. In addition, higher interest rates may be increasing the costs of opening a futures position, such as higher margin rates.” Keep this in mind the next time oil prices crash.

East Coast Shortages: “By the end of April, gasoline inventories on the East Coast were 14 million barrels below their five-year (2017–2021) average levels (Figure 6). At the same time, combined Gulf Coast and Midwest inventories were almost 2 million barrels above their five-year average level. In May, East Coast gasoline inventories remained low and did not decrease much further, while Midwest and Gulf Coast inventories drew down substantially. On May 27, combined Gulf Coast and Midwest inventories were down by 6 million barrels from their end-April levels while East Coast gasoline inventories were down by almost 1 million barrels”

Tight Diesel Supplies: We estimate distillate imports, which would normally increase to help rebuild low inventories and moderate prices, were below the five-year average at 145,000 b/d for the four weeks ending May 27. If confirmed in monthly data, this recent decrease in distillate imports would signal that global demand remains strong as markets continue to adjust to sanctions on Russia’s exports, reduced export quotas in China, and overall lower global refinery capacity.

Refinery crack spreads: Inventories for gasoline and diesel in the United States are low at the same time that they are similarly low in Europe and elsewhere in the Atlantic Basin, contributing to broad increases in crack spreads for both products

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Maket Talk Update 06.08.2022

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Market TalkFriday, Jul 19 2024

Summertime-Friday-Apathy Trade Influencing Energy Markets

Energy markets are treading water to start the day as the Summertime-Friday-Apathy trade seems to be influencing markets around the world in the early going. RBOB futures are trying for a 3rd straight day of gains to wipe out the losses we saw to start the week, while ULSD futures continue to look like the weak link, trading lower for a 2nd day and down nearly 3 cents for the week.

Bad to worse: Exxon’s Joliet refinery remains offline with reports that repairs may take through the end of the month. On top of that long delay in restoring power to the facility, ENT reported this morning that the facility has leaked hydrogen fluoride acid gas, which is a dangerous and controversial chemical used in alkylation units. Chicago basis values continue to rally because of the extended downtime, with RBOB differentials approaching a 50-cent premium to futures, which sets wholesale prices just below the $3 mark, while ULSD has gone from the weakest in the country a month ago to the strongest today. In a sign of how soft the diesel market is over most of the US, however, the premium commanded in a distressed market is still only 2 cents above prompt futures.

The 135mb Calcasieu Refinery near Lake Charles LA has been taken offline this morning after a nearby power substation went out, and early reports suggest repairs will take about a week. There is no word yet if that power substation issue has any impacts on the nearby Citgo Lake Charles or P66 Westlake refineries.

Two tanker ships collided and caught fire off the coast of Singapore this morning. One ship was a VLCC which is the largest tanker in the world capable of carrying around 2 million barrels. The other was a smaller ship carrying “only” 300,000 barrels (roughly 12 million gallons) of naphtha. The area is known for vessels in the “dark fleet” swapping products offshore to avoid sanctions, so a collision isn’t too surprising as the vessels regularly come alongside one another, and this shouldn’t disrupt other ships from transiting the area.

That’s (not) a surprise: European auditors have determined the bloc’s green hydrogen goals are unattainable despite billions of dollars of investment, and are based on “political will” rather than analysis. Also (not) surprising, the ambitious plans to build a “next-gen” hydrogen-powered refinery near Tulsa have been delayed.

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Market TalkThursday, Jul 18 2024

Refined Products Stanch Bleeding Despite Inventory Builds And Demand Slump

Refined products are trading slightly lower to start Thursday after they stopped the bleeding in Wednesday’s session, bouncing more than 2 cents on the day for both RBOB and ULSD, despite healthy inventory builds reported by the DOE along with a large slump in gasoline demand.

Refinery runs are still above average across the board but were pulled in PADD 3 due to the short-term impacts of Beryl. The Gulf Coast region is still outpacing the previous two years and sitting at the top end of its 5-year range as refiners in the region play an interesting game of chicken with margins, betting that someone else’s facility will end up being forced to cut rates before theirs.

Speaking of which, Exxon Joliet was reportedly still offline for a 3rd straight day following weekend thunderstorms that disrupted power to the area. Chicago RBOB basis jumped by another dime during Wednesday’s session as a result of that downtime. Still, that move is fairly pedestrian (so far) in comparison to some of the wild swings we’ve come to expect from the Windy City. IIR via Reuters reports that the facility will be offline for a week.

LA CARBOB differentials are moving in the opposite direction meanwhile as some unlucky seller(s) appear to be stuck long and wrong as gasoline stocks in PADD 5 reach their highest level since February, and held above the 5-year seasonal range for a 4th consecutive week. The 30-cent discount to August RBOB marks the biggest discount to futures since 2022.

The EIA Wednesday also highlighted its forecast for rapid growth in “Other” biofuels production like SAF and Renewable Naptha and Propane, as those producers capable of making SAF instead of RD can add an additional $.75/gallon of federal credits when the Clean Fuels Producer’s Credit takes hold next year. The agency doesn’t break out the products between the various “Other” renewable fuels, but the total projected output of 50 mb/day would amount to roughly 2% of total Jet Fuel production if it was all turned to SAF, which of course it won’t as the other products come along for the ride similar to traditional refining processes.

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

Pivotal Week For Price Action