Fuel Prices And Renewable Credits Face Whiplash
It’s been a busy month worth of trading this week as fuel prices and renewable credits all face a bout of whiplash. Gasoline and diesel contract managed to wipe out Tuesday’s big losses that approached 10 cents in many markets with even larger gains Wednesday, only to start Thursday’s session dropping back 5-6 cents.
The blockage of the Suez canal got way too much credit for Wednesday’s big price rally, as the issue is expected to be cleared by the weekend, and should not have any long term impacts. If the event was the main driver of the price action during the rally, we would have seen time spreads strengthen, reflecting the short term supply crunch, which just didn’t happen as prices were up big across the forward curve. Want another reason why that probably wasn’t why prices rallied yesterday? The ship is still stuck this morning and prices are down 3%.
The DOE’s weekly report showed that the great refinery recovery continues, but Gulf Coast (PADD 3) runs are still 800mb/day below where they were prior to the polar plunge. Plants in other regions are taking advantage of the disruption, with East & West Coast refiners increasing rates to their highest levels in a year to capitalize on the (recently) rare window to make healthy margins caused by the widespread outages and slow recovery.
Gasoline imports remain nearly 2X normal levels for this time of year as replacement barrels for those lost from downed refineries are arriving. That phenomenon may help explain some of the strength in RIN pricing over the past month as those imported barrels require purchasing a full slate of RIN codes to comply with the RFS.
Demand estimates from the DOE were sluggish last week – and certainly didn’t help explain the big price jump following the report – with distillate consumption dropping sharply over the past two weeks while gasoline has stagnated.
An EIA report this morning highlights the vastly different refining landscape in the U.S. – which for decades has been the world leader in refining – and China, which surpassed U.S. output for most of 2020.
Click here to download a PDF of today's TACenergy Market Talk.
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View AllThe Energy Bulls Are On The Run This Morning, Lead By Heating And Crude Oil Futures
The energy bulls are on the run this morning, lead by heating and crude oil futures. The November HO contract is trading ~7.5 cents per gallon (2.3%) higher while WTI is bumped $1.24 per barrel (1.3%) so far in pre-market trading. Their gasoline counterpart is rallying in sympathy with .3% gains to start the day.
The October contracts for both RBOB and HO expire today, and while trading action looks to be pretty tame so far, it isn’t a rare occurrence to see some big price swings on expiring contracts as traders look to close their positions. It should be noted that the only physical market pricing still pricing their product off of October futures, while the rest of the nation already switched to the November contract over the last week or so.
We’ve now got two named storms in the Atlantic, Philippe and Rina, but both aren’t expected to develop into major storms. While most models show both storms staying out to sea, the European model for weather forecasting shows there is a possibility that Philippe gets close enough to the Northeast to bring rain to the area, but not much else.
The term “$100 oil” is starting to pop up in headlines more and more mostly because WTI settled above the $90 level back on Tuesday, but partially because it’s a nice round number that’s easy to yell in debates or hear about from your father-in-law on the golf course. While the prospect of sustained high energy prices could be harmful to the economy, its important to note that the current short supply environment is voluntary. The spigot could be turned back on at any point, which could topple oil prices in short order.
Click here to download a PDF of today's TACenergy Market Talk.
Gasoline And Crude Oil Futures Are All Trading Between .5% And .8% Lower To Start The Day
The energy complex is sagging this morning with the exception of the distillate benchmark as the prompt month trading higher by about a penny. Gasoline and crude oil futures are all trading between .5% and .8% lower to start the day, pulling back after WTI traded above $95 briefly in the overnight session.
There isn’t much in the way of news this morning with most still citing the expectation for tight global supply, inflation and interest rates, and production cuts by OPEC+.
As reported by the Department of Energy yesterday, refinery runs dropped in all PADDs, except for PADD 3, as we plug along into the fall turnaround season. Crude oil inventories drew down last week, despite lower runs and exports, and increased imports, likely due to the crude oil “adjustment” the EIA uses to reconcile any missing barrels from their calculated estimates.
Diesel remains tight in the US, particularly in PADD 5 (West Coast + Nevada, Arizona) but stockpiles are climbing back towards their 5-year seasonal range. It unsurprising to see a spike in ULSD imports to the region since both Los Angeles and San Francisco spot markets are trading at 50+ cent premiums to the NYMEX. We’ve yet to see such relief on the gasoline side of the barrel, and we likely won’t until the market switches to a higher RVP.