Gasoline Futures Continue Their Slide Lower To Start Wednesday’s Trading Session

Market TalkWednesday, Jun 15 2022
Pivotal Week For Price Action

Gasoline futures continue their slide lower to start Wednesday’s trading session, falling 40 cents from Friday’s highs, and getting closer to bringing some technical support levels into play that could make this pullback more than just a routine correction. 

Given the incredibly steep slope of the gasoline rally (from $1.87 to $4.32 in 6 months) there could be a 20 cent or more difference in where the bullish trend line falls today depending on how broad of a brush you choose to use. A range between $3.70 and $3.90 and s looks like it might be the next stopping point if this pullback continues, with a drop back to $3 possible if that range doesn’t hold. If you’re looking for a more precise number to watch for an early warning sign that the top could be in for the year, peg $3.89, which marked the high in March before prices dropped $1/gallon. That former resistance could become new support, or it could be nothing more than a speed bump in a market that’s been smashing records left and right this year.

While gasoline prices are suddenly looking fragile technically, diesel futures are holding strong, and could be poised for another strong rally near term if they can take out the June high of $4.51. Longer term, the diesel chart continues to look like it could be forming a head and shoulders top that could ultimately see prices drop back below the $3 mark later this year IF prices stall out in the next few weeks. Natural gas continues to lend fundamental support to diesel prices, with today’s news that Russia had cut 15% of its gas supply to Italy seeming to help ULSD be trading up 4 cents while gasoline is down 4.

The API reported small builds in Diesel and Crude oil inventories last week, while gasoline stocks dropped by 2.1 million barrels. Given that diesel is up and gasoline down, it’s clear the market isn’t too worked up about that report, and may also shrug off the DOE’s weekly report this morning with many focusing on the FED instead.

A week ago, traders in FED Fund futures were only giving 8% odds of a 75 point rate hike in today’s FOMC announcement, but today those odds are up to 95% which seems to coincide with a lot of the selling we’ve seen in equities during that stretch. That big change in sentiment in a relatively short time could be setting the stage for another bout of extreme volatility if the committee surprises the big money bettors again.

Reminder: Monday June 20th is a new Federal observance of Juneteenth in the US. Energy Futures will trade in an abbreviated session but there will not be a settlement Monday, and spot markets will not be assessed. 

Today’s interesting read from the FT: Oil vs Human Rights and the US President’s trip to Saudi Arabia, which also happens to be at the forefront for many [Gulf] Golf fans these days.

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Market Talk Update 06.15.22

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Market TalkFriday, Jul 19 2024

Summertime-Friday-Apathy Trade Influencing Energy Markets

Energy markets are treading water to start the day as the Summertime-Friday-Apathy trade seems to be influencing markets around the world in the early going. RBOB futures are trying for a 3rd straight day of gains to wipe out the losses we saw to start the week, while ULSD futures continue to look like the weak link, trading lower for a 2nd day and down nearly 3 cents for the week.

Bad to worse: Exxon’s Joliet refinery remains offline with reports that repairs may take through the end of the month. On top of that long delay in restoring power to the facility, ENT reported this morning that the facility has leaked hydrogen fluoride acid gas, which is a dangerous and controversial chemical used in alkylation units. Chicago basis values continue to rally because of the extended downtime, with RBOB differentials approaching a 50-cent premium to futures, which sets wholesale prices just below the $3 mark, while ULSD has gone from the weakest in the country a month ago to the strongest today. In a sign of how soft the diesel market is over most of the US, however, the premium commanded in a distressed market is still only 2 cents above prompt futures.

The 135mb Calcasieu Refinery near Lake Charles LA has been taken offline this morning after a nearby power substation went out, and early reports suggest repairs will take about a week. There is no word yet if that power substation issue has any impacts on the nearby Citgo Lake Charles or P66 Westlake refineries.

Two tanker ships collided and caught fire off the coast of Singapore this morning. One ship was a VLCC which is the largest tanker in the world capable of carrying around 2 million barrels. The other was a smaller ship carrying “only” 300,000 barrels (roughly 12 million gallons) of naphtha. The area is known for vessels in the “dark fleet” swapping products offshore to avoid sanctions, so a collision isn’t too surprising as the vessels regularly come alongside one another, and this shouldn’t disrupt other ships from transiting the area.

That’s (not) a surprise: European auditors have determined the bloc’s green hydrogen goals are unattainable despite billions of dollars of investment, and are based on “political will” rather than analysis. Also (not) surprising, the ambitious plans to build a “next-gen” hydrogen-powered refinery near Tulsa have been delayed.

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Market TalkThursday, Jul 18 2024

Refined Products Stanch Bleeding Despite Inventory Builds And Demand Slump

Refined products are trading slightly lower to start Thursday after they stopped the bleeding in Wednesday’s session, bouncing more than 2 cents on the day for both RBOB and ULSD, despite healthy inventory builds reported by the DOE along with a large slump in gasoline demand.

Refinery runs are still above average across the board but were pulled in PADD 3 due to the short-term impacts of Beryl. The Gulf Coast region is still outpacing the previous two years and sitting at the top end of its 5-year range as refiners in the region play an interesting game of chicken with margins, betting that someone else’s facility will end up being forced to cut rates before theirs.

Speaking of which, Exxon Joliet was reportedly still offline for a 3rd straight day following weekend thunderstorms that disrupted power to the area. Chicago RBOB basis jumped by another dime during Wednesday’s session as a result of that downtime. Still, that move is fairly pedestrian (so far) in comparison to some of the wild swings we’ve come to expect from the Windy City. IIR via Reuters reports that the facility will be offline for a week.

LA CARBOB differentials are moving in the opposite direction meanwhile as some unlucky seller(s) appear to be stuck long and wrong as gasoline stocks in PADD 5 reach their highest level since February, and held above the 5-year seasonal range for a 4th consecutive week. The 30-cent discount to August RBOB marks the biggest discount to futures since 2022.

The EIA Wednesday also highlighted its forecast for rapid growth in “Other” biofuels production like SAF and Renewable Naptha and Propane, as those producers capable of making SAF instead of RD can add an additional $.75/gallon of federal credits when the Clean Fuels Producer’s Credit takes hold next year. The agency doesn’t break out the products between the various “Other” renewable fuels, but the total projected output of 50 mb/day would amount to roughly 2% of total Jet Fuel production if it was all turned to SAF, which of course it won’t as the other products come along for the ride similar to traditional refining processes.

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Pivotal Week For Price Action