Fear Seems To Be Creeping Back Into Both Energy And Equity Markets
Fear seems to be creeping back into both energy and equity markets leading to a broad selloff to start the last day of the last “normal” trading week of the year. From here on out volumes and liquidity tend to get sketchy which can create both extremely boring trade, and some very volatile trade depending on how the computer programs manage the lack of human interaction.
Take your pick of fear headlines driving the move lower this morning. Omicron is proving to be spreading faster and vaccine resistant forcing more lockdowns, and more delays of return to work plans. Fear of hawkish central bank policy on inflation. Tech stocks getting hammered. Santa’s elves are struggling with supply chain bottlenecks. Whatever cause you choose, there’s no mistaking that both RBOB and ULSD prices rallied right into their weekly trend-lines and then pulled back sharply in the past 24 hours, which makes the bear market look very much intact, and setting up another test of the $2 mark in the weeks to come.
On the other hand, if you’re bullish on refined product prices heading into the winter, then you might point out that despite the pullback, prices this week did set a higher high and higher low than he past two weeks, and that trend lines are overrated indicators, so there’s really no reason for a big selloff soon, especially with the potential for a Santa Claus rally in stocks coming next week. If you’re in this camp, the vampire squid known as Goldman Sachs agrees with you as they’re making a case that $100 oil is still possible next year.
Speaking of conflicting opinions on market direction: RINs are having a really hard time making up their mind after the EPA changed the game on the RFS last week. After 4 different swings of 30 cents or more, D6 ethanol RINs are hovering just under the $1 mark. D4 RINs have not been as volatile (which is normal for the lower volume contract) and the spread between D4 and D6 has blown out to an all-time record beyond 60 cents for 2021 contracts, compared to spreads of less than a dime for most of this year, while the spread for 2022 contracts is less than 30 cents, reflecting the dramatic change in the RVOs.
Today’s interesting read: A report from the Dallas Fed on the acceleration in US migration from major metro areas to Texas since the pandemic started. Some interesting notes: California/New York and Illinois (Chicago) are seeing mass exodus that would make Moses proud. DFW is the leading recipient of migrants within Texas. People from Houston are moving to DFW, but people from DFW aren’t moving to Houston. Oklahoma is the only state seeing an influx of Texans, which makes sense since it’s basically a suburb of DFW now.
Click here to download a PDF of today's TACenergy Market Talk.
Latest Posts
Energy Markets Are Holding Steady To Start Tuesday’s Session
Energy Futures Rebound to Start the Week
Correlation Confusion Between Oil, Stock, And Currency Markets; US Drops Plan to Replenish SPR
FOMC Rate Increase Rocks Equity Markets, Energy Futures Unshaken
Social Media
News & Views
View AllEnergy Markets Are Holding Steady To Start Tuesday’s Session
Energy markets are holding steady to start Tuesday’s session after oil prices had their biggest rally of the year Monday.
Reports that Iraq had halted shipments on the Ceyhan pipeline through Turkey, which removed 400,000 barrels/day of exports from the world market temporarily were given much of the credit for the big move higher. The rally in oil came just a week after large speculators reduced their bets on higher prices to the lowest level in 7 years, providing yet another reminder of why the moves made by hedge funds is often seen as a contrary indicator of market direction.
Refined products touched a 2-week high overnight before pulling back to modest losses this morning but remain in the middle of their March trading range, which sets the stage for more choppy back and forth action as markets around the world search for direction and worry about what’s coming next.
California approved the bill that will create a new committee within the state’s energy commission that will oversee oil refiners and potentially levy penalties on them if they’re deemed to be making too much money on consumers. The state has already had a handful of refineries close down in the past 6 years, with another scheduled to close and convert to an RD facility in early 2024, and there’s no doubt that this new law may be yet another reason for the remaining facilities to consider closing their doors as well, which many will see as a victory.
The Dallas FED’s manufacturing Survey showed a small increase in production in March, after February showed a contraction for the first time since the COVID lockdowns. The business outlook remains mixed however as many noted uncertainties around the banking situation, along with continued supply chain and labor challenges as factors hindering growth.
New competitor for feedstocks? A moose breached the security gates at the refinery in Sinclair Wyoming Monday. No word if the animal was just lost, or searching for the soybeans that are now being used to make renewable diesel at that facility.
Click here to download a PDF of today's TACenergy Market Talk.
Energy Futures Rebound to Start the Week
Energy futures are bouncing to start the week, following through on a recovery rally that saw Friday’s early losses wiped out and salvaged weekly gains.
Money managers have been bailing out of their bets on higher energy prices in recent weeks, and as the CFTC’s data is finally catching up after 2 months of delays, we can finally see those figures the same week they’re compiled. The past two weeks alone have seen a reduction of more than 100,000 WTI contracts held by large speculators, bringing the total net length to the lowest level since January 2016.
The COT data also shows large reductions in producer hedging during this latest selloff in a sign that the industry may believe that prices won’t stay this low for long.
A WSJ article over the weekend highlighted how the options traders may have exacerbated the push lower over the past two months and could help spark a recovery rally later in the year.
Baker Hughes reported an increase of 4 oil rigs drilling in the US last week, snapping a 5-week slide that had pushed drilling activity to a 9-month low. The Permian basin accounted for 3 of the 4 rigs added last week.
Iraq won a 9-year lawsuit against Kurdish oil shipments, and that result has temporarily halted shipments of oil from the autonomous Kurdish region via the Turkish Ceyhan pipeline system.
Saudi Arabia announced an expansion of its partnership with China, increasing its multi-billion investment in new refining infrastructure in the world’s largest oil buyer. We’ve already seen multiple new refinery projects come online in both countries over the past two years, and this new agreement will continue the trend of additional capacity in the eastern hemisphere while the west continues to see declines.
Click here to download a PDF of today's TACenergy Market Talk.
Correlation Confusion Between Oil, Stock, And Currency Markets; US Drops Plan to Replenish SPR
Oil prices are leading a slide lower to end the week after the US government walked back plans to buy oil since it’s dropped below $70, and the latest ripples in the banking crisis push stocks lower and the dollar sharply higher after it touched a 2-month low Thursday.
Even though the correlation between energy prices and stocks or currencies has been weak lately, or even opposite of normal in the case of the dollar, there still seems to be more influence lately as the fear trade has funds flowing back and forth between markets depending on whether or not risk-taking is in style that day.
The US Energy Secretary told congress that the agency won’t be refilling the SPR this year, despite previous pledges by the White House to buy oil when it dropped to $70, since the agency is still working through congressionally mandates sales of oil from the reserve. That news seems to be contributing to the downside in WTI and Brent prices as traders hoping to front run the DOE are now going to have to wait a while longer to do so.
Even though ULSD prices are up 17 cents from the lows set last week, they’re still on the verge of their lowest weekly settlement since January of 2022 should prices end the day near current levels. Given that this week’s recovery rally failed to take out the highs seen in previous weeks, charts continue to look bearish for distillates. Another run at $2.50 looks more likely and a break below that level, when the May contract takes the prompt position in another week, may be a foregone conclusion.
As has been the case for most of March, RBOB look as bad as ULSD on the charts, although that certainly isn’t helping so far today with gasoline futures outpacing the losses in diesel. Unless we see RBOB end the day down a dime or more (it’s down a nickel currently) the weekly trend will still be higher, and the charts will still be giving favor to another push towards $2.80-$3 this spring.
The LA spot market saw a healthy bounce in gasoline basis values Thursday following multiple refinery upsets in the area reported to local regulators. Meanwhile, the California Governors new plan to create an oversight committee to prevent price gouging – a major change from earlier proposals to levy a new tax on oil producers and refiners – passed through the Senate on Thursday. If this new bill is fully passed, it will allow the Governor to appoint that committee himself. A 1,000-page prediction of how that plan will work is available for less than $10 on Amazon.
Click here to download a PDF of today's TACenergy Market Talk.