Equity Markets Rallied To Fresh Record Highs Wednesday After The FED Increased Its GDP Estimates For The US

Market TalkThursday, Mar 21 2024
Pivotal Week For Price Action

Energy futures are moving modestly lower for a 2nd day as the attacks on Russian refineries seem to have subsided. ULSD futures are once again leading the move lower and are now down more than 12 cents since Monday, while RBOB and WTI are still acting like this pullback is just a brief consolidation during a larger move higher.

Equity markets rallied to fresh record highs Wednesday after the FED increased its GDP estimates for the US, and stuck to its outlook that it would likely cut interest rates 3 times later in the year. Even though the correlation between equity price moves and gasoline and crude oil prices have strengthened lately, and those prices did end the session off the lows, it doesn’t seem like the enthusiasm in the stock market is carrying over as much into the energy arena as it’s done in years past. ULSD prices meanwhile continue to have essentially no relationship to moves in stocks and continue to look weak even though the rest of the complex looks like it wants to push higher for a real spring rally.

The DOE’s weekly report echoed the sentiment that gasoline and oil prices have some momentum while diesel has plenty of headwinds.

Gasoline inventories continued to follow their seasonal pattern and declined for a 7th straight week as we pass the half-way point of the spring RVP transition. While domestic demand for gasoline is average-at-best, export demand for gasoline remains strong at north of 1 million barrels/day which is helping keep inventories in check and preventing margin erosion for refiners. Roughly half of all US gasoline exports go to Mexico, who despite outlandish claims by its President is nowhere near reaching refined fuel sovereignty based on the actual data since its existing refineries are operating at less than 50% of capacity (vs 90% for the US) and its new Dos Bocas refinery still isn’t producing fuel despite many claims to the contrary.

Diesel inventories increased for a 2nd week, with low PADD 1 stocks probably the only thing preventing a more dramatic drop in futures. PADD 3 diesel inventories are above average, PADD 4 is close to a record high and PADD 5 stocks are severely understated due to Renewable Diesel not showing up in the stats. PADD 2 inventories did pull back again from near record levels, but with BP whiting back up to full rates, that trend may soon reverse. Exports have not yet come to the rescue of sluggish domestic diesel demand, but that’s expected to change in coming weeks as international buyers have to replace barrels that Russia has lost to the drone attacks on its refineries.

Speaking of which, the expected shift of Russian exports from refined product to crude oil thanks to the successful drone campaign damaging facilities is already seeing logistical complications due to the change in tankers needed, and the sanctions on the fleet. While there’s no doubt the big trading houses will eventually find loopholes to work around this issue like they did in 2022, but those changes will take time.

PADD 2 refinery runs show the impact of the BP restart, with throughput rates going from below average to above the 5-year range in just one week. PADD 3 run rates dipped after 4 straight weeks of gains as another rash of unplanned upsets kept the Gulf Coast total throughput in check.

Natural Gas to gasoline is alive. Next Wave Energy announced the start of commercial operations of its Houston facility that’s been in the works for more than 5 years. The plant turns natural gas liquids into 96 octane alkylate that can then be further blended into the gasoline pool, particularly the premium grades. Next up the company is looking at options to make renewable diesel and SAF at the facility, but they may want to wait a couple years on that one given the current challenging economics of renewables.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.

Market Talk Update 3.21.2024

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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