FOMC Rate Increase Rocks Equity Markets, Energy Futures Unshaken

Market TalkThursday, Mar 23 2023
Pivotal Week For Price Action

Stocks didn’t like the FOMC’s move to increase the fed funds rate by 25 points even as it acknowledged that recent banking developments will weigh on economic activity, or the economic projections that showed inflation expectations moving higher than previously forecast and had their worst day in 2 weeks following those announcements. 

Even though energy and equity markets have seen their correlation strengthen in March following the banking crisis, the drop in equities did little to slow the recovery rally in energy that stretched to a third day Wednesday. We are seeing a more cautious start this morning with both WTI and ULSD seeing modest losses early, while RBOB continues to push higher for a 4th day. 

Gasoline futures are seeming to get a small boost from reports that Monroe was forced to shut an FCC unit at its Trainer PA refinery following a fire Monday. As the charts below show, PADD 1 refinery runs are already at the low end of their seasonal range due to turnaround work at the P66 Bayway facility. Prices to ship products on Colonial have been trading in negative territory lately, and gasoline traders will not want to buy Gulf Coast barrels that have already transitioned to summer grades and bring them to the East Coast that still has a few weeks left to sell winter-grade product, but if this outage is extended, we could see that change next week.

Reports suggest 13% of French fueling stations are tight on supply due to the continuing refinery strikes, with some regions seeing as many as half of their stations out of fuel. The supply disruptions continue to get minimal reaction from global markets with only modest strengthening in time and crack spreads observed so far.  A glut of distillates in Asia, as the Eastern hemisphere deals with an influx of Russian exports (aka the opposite problem the Western hemisphere had last year) is contributing to the lack of reaction to the latest supply disruption.

The EIA reported another 2 million barrels/day of crude oil inventory adjustments last week, while strong exports held domestic inventories steady despite another 14 million barrels being found.  The agency also released its report on its findings for the rapidly growing adjustment, and its plan to update its weekly survey to help the data make more sense. The report admits that the agency has been inadvertently overstating domestic petroleum consumption, by counting light hydrocarbons and unfinished oils blended into crude as if they’ve been used by consumers, which explains the “record high” total demand even while refined products have seen declines in their figures.

Both gasoline and diesel demand did see healthy increases last week, marking a 2nd straight week of improving numbers for both. Diesel consumption is still at the low end of its seasonal range despite two weeks of growth in the EIA’s estimates, while gasoline is just below its 5-year average for this time of year. Retail prices for both are now approaching $1/gallon less than they were a year ago, which should help give a boost to consumption as we move further into spring.

PADD 5 refinery runs saw another healthy increase last week, and a tick up in imports, both of which might help explain the big declines in gasoline and diesel basis values we’ve seen in the past two weeks.  In addition, Wednesday saw a pipeline deal for RD99 executed in the LA market, which will certainly be the first of many as that rapidly increasing supply comes to market. ULSD values did recover from Tuesday’s attempt to liquidate with no liquidity that briefly pushed values down a theoretical 45 cents for the day, although prompt values are still going for 20+ cent discounts to April futures.


The EIA did not yet report Exxon’s 250,000 barrel/day expansion at its Beaumont facility, even though those units have been running for several weeks now. The facility did report an upset in a hydrocracker unit Wednesday, although the impact of that event is still unclear.

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

Market Talk Update 03.23.2023

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Pivotal Week For Price Action
Market TalkMonday, Mar 18 2024

ULSD Futures Are Trading Up For A 4th Straight Day, which Has Finally Broken The Downward Sloping Weekly Trend-Line Since Early February

Refined products are rallying again to start the week after another round of attacks on Russian refineries over the weekend. For RBOB futures, this is the 6th straight day of increases, and prices have added 22 cents so far in that stretch and touched their highest level since September. ULSD futures are trading up for a 4th straight day, adding 15 cents in that time, which has finally broken the downward sloping weekly trend-line that had pushed prices lower since early February.

When a refinery in the US has a power outage or other unplanned disruption, it’s very challenging to get a clear read on the operational status of the facility (even sometimes for employees of that company) given the complex nature of operations and the economic stakes of that information. Once that reality sinks in, it’s easier to understand why getting a clear read on the actual impact of the drone attacks on at least 6 Russian refineries is about as easy as pronouncing their names.

The 6 refineries hit in the past week represent 1.3 million barrels of capacity, which makes up 24% of Russia’s total estimated refining capability, or just over 1% of global capacity. If even half of that output is shut for repairs as several reports suggest, it will have a meaningful impact on export flows, with countries like Brazil that had reduced US purchases in the past two years to take more disadvantaged Russian diesel the immediate losers, while USGC refiners should see a tick higher in their diesel export volumes that had stagnated of late (see charts below).

Staging for a spring rally: Confirming their bandwagon jumper status, money managers look like they’re joining in on the spring RBOB rally, now that prices have already reached 6-month highs. 1 out of 5 remaining of the large speculative short positions in RBOB contracts threw in the towel last week, while more than 4,000 new long positions were added.

HO futures saw the opposite response from money managers, who liquidated long positions and added new short bets in the US ULSD contract last week. The European diesel (gasoil) contracts, which has more than double the open interest of its US counterpart, saw a small increase in net length last week.

While open interest has recovered from the “too hot to handle” period of 2022, both the total OI for NYMEX and ICE petroleum contracts and the positions held by large speculative traders are still low compared to before the full-scale invasion of Ukraine broke out 2 years ago. Since the refinery attacks didn’t really get going until Tuesday of last week, which is also the day the CFTC collects its data for the Commitments of Traders report, these figures don’t yet include how hedge funds reacted to the attacks, but based on the price action there’s little doubt that the big speculators were piling in to refined product contracts, and now it’s just a question of how long they’ll stick around.

Baker Hughes reported an increase of 6 oil rigs and 1 natural gas rig in the US last week, pushing the total oil rig count to the highest level since September. Given the months of lead time generally needed to get new rigs active, it’s unlikely that the latest rally north of $80 was the catalyst for the rig count rising in 3 of the past 4 weeks, but it does come at an opportune time given that US production has dipped from its record high of 13.3 million barrels to 13.1 million, if you believe the EIA’s accounting problems have been fixed.

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

Pivotal Week For Price Action
Market TalkFriday, Mar 15 2024

Energy Futures Are Taking a Breather Friday Morning After Another Rally Thursday Pushed Gasoline Prices To A Fresh 6 Month High

Energy futures are taking a breather Friday morning after another rally Thursday pushed gasoline prices to a fresh 6 month high, while crude oil prices reached their highest since early November. Diesel prices are trying to drag the complex lower this morning, and continue to look the weakest on the charts, but the momentum overall seems to be favoring higher prices as we move into spring.

It’s been a good week for many US refiners, with PBF, Marathon, P66 and Valero stock prices all reaching record highs, even though the current margin environment is a far cry from the levels they enjoyed for most of 2022 and 2023. It seems that a few macro factors are feeding the equity strength: The 3 Russian refineries hit by drones this week, and various shipping disruptions around the Red Sea, and now perhaps the Indian Ocean, are a reminder of the world’s limitations, even when crude oil is ample. There’s also the sense that reality is sinking in that the energy transition is going to take much longer than many hoped just a few short years ago.

Ethanol and RIN prices continue their recovery rallies this week, with D4 and D6 RINs reaching their highest in 2 months at 57 cents/RIN, but are still down about 20 cents so far in 2024, and roughly $1/RIN from this time last year. A government investigation into improper accounting at ADM is now reportedly focused on the company’s ethanol trading, although it seems like whatever happened was in prior years and probably not contributing to the price swings this week.

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

Pivotal Week For Price Action
Market TalkThursday, Mar 14 2024

Energy Markets Are Continuing To Rally After A Strong Push Higher Wednesday Sent Gasoline Futures To A 6-Month High

Energy markets are continuing to rally after a strong push higher Wednesday sent gasoline futures to a 6-month high. Yesterday’s news of multiple attacks on Russian refineries had the buyers out early, and the DOE’s weekly status report added a boost to the gasoline rally, even though the report shows that the supply/demand balance is very different by product and by region.

While the DOE’s gasoline headline numbers were quite bullish, and the market reacted accordingly following the report, a look at the inventory charts below suggests we’re really just following the typical pattern of steadily drawing down stocks ahead of the spring RVP change. The DOE’s estimates showed an increase in gasoline demand for a 4th straight week, which keeps consumption right around the 5-year average for this time of year.

The USGC saw a large increase in diesel stocks last week, which helped offset another decline in PADD 3 inventories, which was foreshadowed by weaker diesel basis values over the past week.

Worst to first: After several months of being the cheapest in the country, Chicago ULSD is now tied for the most expensive nationwide as the struggle to bring BP whiting fully back online continues, which helped draw down PADD 2 diesel inventories for a 6th straight week.

While PADD 4 remains a rounding error and doesn’t really impact any futures or spot markets in a meaningful way, there does appear to be a potential diesel containment issue brewing for the Rocky Mountain region, with inventories rapidly approaching record high levels, likely in part due to the influx of renewables on the West Coast taking away one of their outlets. Several of the remaining small refiners in the region have been on the chopping block for years and this latest glut of supply will further complicate their economics.

The IEA increased its oil demand forecast in its monthly report, reluctantly following the lead of the OPEC and EIA monthly estimates, in large part due to the resilience in US economic activity in recent months. The report noted that seaborne oil exports are at an all-time high due to the major shipping disruptions forcing tankers to take longer to make their runs.

Bad news for Citgo? A Reuters report says the first round of bidding in the company’s auction didn’t go as well as hoped (almost as though bidders didn’t want to end up in years of legal battles if awarded) which suggests the courts may have to revamp the sale process that’s been going nowhere for years.

More refinery trouble? 4 different Texas facilities reported upsets to the TCEQ in the past 24 hours. P66 Borger dodged the wildfires last week, but reported 5 different flares were triggered yesterday, suggesting a multi-unit upset that could tighten up supplies stretching from the Panhandle to New Mexico. Meanwhile, Flint Hills Corpus Christi East plant and Exxon Beaumont’s chemical plant both reported brief upsets while Marathon’s Galveston Bay facility made its seemingly obligatory weekly flaring notice.

The recovery rally in RIN values continues, with both D4 and D6 prices trading north of the 50 cent mark Wednesday for the first time in a month. Recovering corn and soybean prices, which are boosting ethanol and bio prices, all seem to be contributing after all of those contracts reached multi-year lows in February.

Trouble in LaLa Land? California Carbon Allowance (CCA) prices fell by the most in 2 years Wednesday after the auction for Washington state’s made-up-carbon-credit program settled at half of the value of the December price auction, amidst concerns that program will be voted out of existence in November. While noteworthy, that drop in CCA prices only reduces the cost/gallon for consumers on the CCA line item fee (don’t call it a tax) by 1.5-2 cents from around 31.5 cents/gallon for California gasoline and 40 cents/diesel Tuesday night to 29 and 38 respectively today. The drop in Washington’s prices will be more dramatic, but since the auction values just posted yesterday, they’ll need another day to hit the racks, with just a 3-4 cent reduction witnessed so far.

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