Equity Markets Have Been Pulling Back Sharply In Recent Days As Inflation And Trade Concerns Inject A Sense Of Reality Into Stocks

Market TalkTuesday, Apr 16 2024
Pivotal Week For Price Action

It’s a mixed bag for energy markets to start Tuesday’s session with gasoline prices holding small gains, while oil and diesel prices show small losses as the world anxiously debates what comes next in the conflict, we’re still hoping we don’t have to call a war in the Middle East.

An early sell-off picked up steam Monday morning with refined products down more than a nickel for a few minutes, before reports that Israel was vowing to respond to Iran’s attack seemed to encourage buyers step back in an erase most of the losses for the day.

Equity markets have been pulling back sharply in recent days as inflation and trade concerns inject a sense of reality into stocks that had been flying high earlier in the year. The correlation between gasoline and crude oil prices had been fairly strong for the past couple of months but has since weakened as the weakness in stocks hasn’t yet trickled over into the energy arena. Both asset classes are seeing a tick higher in their volatility (aka Fear) indices this week however, and when fear starts driving the trade, we often see these prices move together.

Diesel has been underperforming the rest of the energy complex for most of the year so far, and those hoping for lower diesel prices got more good news when the Dangote refinery in Nigeria began loading diesel for domestic use Monday, in the latest milestone for the giant project that will have a major influence on Atlantic basin supply. Naturally, local lawmakers are already complaining that the refinery’s prices are too high.

The EIA this morning highlighted the record amount of crude oil China imported in 2023 after reopening the country post-COVID and after completing numerous new refinery builds in the past few years. Russia accounted for the largest increase in shipments to China last year, as China is one of the few countries that doesn’t mind ignoring sanctions. Speaking of which, the US House is expected to take up a new vote this week on sanctioning Chinese imports of Iranian crude, which the EIA notes are often hidden by relabeling the crude to make it appear as if it originated in Malaysia, Oman or the UAE.

We’re just 2 weeks away from the startup of Canada’s long-awaited Transmountain pipeline expansion that will bring roughly 600,000 barrels/day of capacity to the Pacific basin. That new outlet is great news for Canadian producers long restricted by takeaway capacity, and bad news for Midcontinent refiners who have grown accustomed to the discounted Canadian grades. A Bloomberg article Monday noted that Iraq’s Basrah Heavy crude is most likely to be displaced by West Coast US refiners who can now buy much closer to home.

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

Market Talk Update 04.16.2024

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Market TalkFriday, May 17 2024

The Recovery Rally In Energy Markets Continues For A 3rd Day

The recovery rally in energy markets continues for a 3rd day with refined product futures both up more than a dime off of the multi-month lows we saw Wednesday morning. The DJIA broke 40,000 for the first time ever Thursday, and while it pulled back yesterday, US equity futures are suggesting the market will open north of that mark this morning, adding to the sends of optimism in the market.

Despite the bounce in the back half of the week, the weekly charts for both RBOB and ULSD are still painting a bearish outlook with a lower high and lower low set this week unless the early rally this morning can pick up steam in the afternoon. It does seem like the cycle of liquidation from hedge funds has ended however, so it would appear to be less likely that we’ll see another test of technical support near term after this bounce.

Ukraine hit another Russian refinery with a drone strike overnight, sparking a fire at Rosneft’s 240mb/day Tuapse facility on the black sea. That plant was one of the first to be struck by Ukrainian drones back in January and had just completed repairs from that strike in April. The attack was just one part of the largest drone attack to date on Russian energy infrastructure overnight, with more than 100 drones targeting power plants, fuel terminals and two different ports on the Black Sea. I guess that means Ukraine continues to politely ignore the White House request to stop blowing up energy infrastructure in Russia.

Elsewhere in the world where lots of things are being blown up: Several reports of a drone attack in Israel’s largest refining complex (just under 200kbd) made the rounds Thursday, although it remains unclear how much of that is propaganda by the attackers and if any impact was made on production.

The LA market had 2 different refinery upsets Thursday. Marathon reported an upset at the Carson section of its Los Angeles refinery in the morning (the Carson facility was combined with the Wilmington refinery in 2019 and now reports as a single unit to the state, but separately to the AQMD) and Chevron noted a “planned” flaring event Thursday afternoon. Diesel basis values in the region jumped 6 cents during the day. Chicago diesel basis also staged a recovery rally after differentials dropped past a 30 cent discount to futures earlier in the week, pushing wholesale values briefly below $2.10/gallon.

So far there haven’t been any reports of refinery disruptions from the severe weather than swept across the Houston area Thursday. Valero did report a weather-related upset at its Mckee refinery in the TX panhandle, although it appears they avoided having to take any units offline due to that event.

The Panama Canal Authority announced it was increasing its daily ship transit level to 31 from 24 as water levels in the region have recovered following more than a year of restrictions. That’s still lower than the 39 ships/day rate at the peak in 2021, but far better than the low of 18 ships per day that choked transit last year.

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

Pivotal Week For Price Action
Market TalkThursday, May 16 2024

Energy Prices Found A Temporary Floor After Hitting New Multi-Month Lows Wednesday

Energy prices found a temporary floor after hitting new multi-month lows Wednesday morning as a rally to record highs in US equity markets and a modestly bullish DOE report both seemed to encourage buyers to step back into the ring.

RBOB and ULSD futures both bounced more than 6 cents off of their morning lows, following a CPI report that eased inflation fears and boosted hopes for the stock market’s obsession of the FED cutting interest rates. Even though the correlation between energy prices and equities and currencies has been weak lately, the spillover effect on the bidding was clear from the timing of the moves Wednesday.

The DOE’s weekly report seemed to add to the optimism seen in equity markets as healthy increases in the government’s demand estimates kept product inventories from building despite increased refinery runs.

PADD 3 diesel stocks dropped after large increases in each of the past 3 weeks pushed inventories from the low end of their seasonal range to average levels. PADD 2 inventories remain well above average which helps explain the slump in mid-continent basis values over the past week. Diesel demand showed a nice recovery on the week and would actually be above the 5 year average if the 5% or so of US consumption that’s transitioned to RD was included in these figures.

Gasoline inventories are following typical seasonal patterns except on the West Coast where a surge in imports helped inventories recover for a 3rd straight week following April’s big basis rally.

Refiners for the most part are also following the seasonal script, ramping up output as we approach the peak driving demand season which unofficially kicks off in 10 days. PADD 2 refiners didn’t seem to be learning any lessons from last year’s basis collapse and rapidly increased run rates last week, which is another contributor to the weakness in midwestern cash markets. One difference this year for PADD 2 refiners is the new Transmountain pipeline system has eroded some of their buying advantage for Canadian crude grades, although those spreads so far haven’t shrunk as much as some had feared.

Meanwhile, wildfires are threatening Canada’s largest oil sands hub Ft. McMurray Alberta, and more than 6,000 people have been forced to evacuate the area. So far no production disruptions have been reported, but you may recall that fires in this region shut in more than 1 million barrels/day of production in 2016, which helped oil prices recover from their slump below $30/barrel.

California’s Air Resources Board announced it was indefinitely delaying its latest California Carbon Allowance (CCA) auction – in the middle of the auction - due to technical difficulties, with no word yet from the agency when bidders’ security payments will be returned, which is pretty much a nice microcosm for the entire Cap & Trade program those credits enable.

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