Expectations For Driving Demand Surge

Market TalkThursday, Apr 29 2021
Traders Torn As Opposing Trend Lines Converge

The rally continues in energy markets, with petroleum futures looking like they are going to test the high trades of the year now that buyers are stepping back into the market in earnest. ULSD prices are now less than two cents from their 2021 highs as their winning streak stretches to six straight days, while RBOB is about seven cents away and oil prices need to add about $3 to set new highs. Fundamentally and technically, diesel contracts are looking the strongest, although expectations for a surge in driving demand this summer seem to be underpinning gasoline prices as well. 

The DOE’s weekly diesel demand estimates remain above average, and are holding above “pre-COVID” levels, even as trucking, rail, and mass transit demand have not fully recovered. A surge in planting activity (thanks in large part to grain prices reaching eight-year-highs) is getting some of the credit for the strong distillate demand, as is the surge in online ordering in the past year by U.S. consumers that’s created a huge increase in small truck delivery activity. 

The EIA’s gasoline demand estimate pulled back on the week, even as signs on the ground suggest that motor fuel consumption may be reaching six months highs. Another sign that the weekly estimate might be light: Look at the large amount of gasoline imports on the week, and yet stockpiles barely increased, suggesting fundamentals may be better than this report suggests. As it stands, the official estimate has gasoline consumption roughly 4% below 2019 levels for this time of year, keeping expectations for a full recovery this summer intact.

Even as demand is getting back towards normal and stockpiles are holding near average levels, refiners are still processing roughly 8% less than their five year average, 1.4 million barrels/day. Some of that reduction comes from the rash of closures that happened in the past 12 months, others due to lingering maintenance issues left over from February’s storms, and some could be that plants still aren’t profitable – even as gross margins have recovered – due to the spike in RIN values this year, that’s pushed renewable obligations costs north of $7/barrel.

RIN prices set new record highs again on Wednesday, even as corn and soybean prices dipped from the high trades we saw on Tuesday. The new EPA administrator testified in front of congress, and was non-committal on the over-due RFS obligation levels (they’ll wait for the supreme court ruling) and on the future of traditional ethanol, attempting to walk the tight rope between the pressure from big-Ag states, and the push to move towards truly advanced fuels.

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

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Pivotal Week For Price Action
Market TalkThursday, Feb 29 2024

It's Another Mixed Start For Energy Futures This Morning After Refined Products Saw Some Heavy Selling Wednesday

It's another mixed start for energy futures this morning after refined products saw some heavy selling Wednesday. Both gasoline and diesel prices dropped 7.5-8.5 cents yesterday despite a rather mundane inventory report. The larger-than-expected build in crude oil inventories (+4.2 million barrels) was the only headline value of note, netting WTI futures a paltry 6-cent per barrel gain on the day.

The energy markets seem to be holding their breath for this morning’s release of the Personal Consumption Expenditures (PCE) data from the Bureau of Economic Analysis (BEA). The price index is the Fed’s preferred inflation monitor and has the potential to impact how the central bank moves forward with interest rates.

Nationwide refinery runs are still below their 5-year average with utilization across all PADDs well below 90%. While PADD 3 production crossed its 5-year average, it’s important to note that measure includes the “Snovid” shutdown of 2021 and throughput is still below the previous two years with utilization at 81%.

We will have to wait until next week to see if the FCC and SRU shutdowns at Flint Hills’ Corpus Christi refinery will have a material impact on the regions refining totals. Detail on the filing can be found on the Texas Commission on Environmental Quality website.

Update: the PCE data shows a decrease in US inflation to 2.4%, increasing the likelihood of a rate cut later this year. Energy futures continue drifting, unfazed.

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
Pivotal Week For Price Action
Market TalkWednesday, Feb 28 2024

It’s Red Across The Board For Energy Prices So Far This Morning With The ‘Big Three’ Contracts All Trading Lower To Start The Day

It’s red across the board for energy prices so far this morning with the ‘big three’ contracts (RBOB, HO, WTI) all trading lower to start the day. Headlines are pointing to the rise in crude oil inventories as the reason for this morning’s pullback, but refined product futures are leading the way lower, each trading down 1% so far, while the crude oil benchmark is only down around .3%.

The American Petroleum Institute published their national inventory figures yesterday afternoon, estimating an 8+ million-barrel build in crude oil inventory across the country. Gasoline and diesel stocks are estimated to have dropped by 3.2 and .5 million barrels last week, respectively. The official report from the Department of Energy is due out at its regular time this morning (9:30 CST).

OPEC’n’friends are rumored to be considering extending their voluntary production cuts into Q2 of this year in an effort to buoy market prices. These output reductions, reaching back to late 2022, are aimed at paring back global supply by about 2.2 million barrels per day and maintaining a price floor. On the flip side, knowledge of the suspended-yet-available production capacity and record US output is keeping a lid on prices.

How long can they keep it up? While the cartel’s de facto leader (Saudi Arabia) may be financially robust enough to sustain itself through reduced output indefinitely, that isn’t the case for other member countries. Late last year Angola announced it will be leaving OPEC, freeing itself to produce and market its oil as it wishes. This marks the fourth membership suspension over the past decade (Indonesia 2016, Qatar 2019, Ecuador 2020).

The spot price for Henry Hub natural gas hit a record low, exchanging hands for an average of $1.50 per MMBtu yesterday. A rise in production over the course of 2023 and above average temperatures this winter have pressured the benchmark to a price not seen in its 27-year history, much to Russia’s chagrin.

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