Gasoline Futures Hit 9-Month Highs, WTI Eyes $80

Market TalkTuesday, Jul 25 2023
Pivotal Week For Price Action

Refinery upsets and optimistic equity markets sent gasoline prices soaring Monday, while ULSD and WTI had a much more tempered outlook. RBOB gasoline futures surged by more than 12 cents to touch a new 9 month high before giving back more than half of those gains since topping out early yesterday afternoon. While WTI was left in gasoline’s wake yesterday, it did manage to settle above its 200 day moving average which leaves the door open to a push north of $80 in the near term.

A reported FCC shutdown at Exxon Baton Rouge set to last weeks, which could erase more than a million barrels of gasoline output, took much of the credit for gasoline prices far outpacing the rest of the complex Monday. In addition, Marathon’s Texas City (aka Galveston Bay) facility had yet another upset over the weekend, marking at least a half dozen events since a fatal fire 2 months ago.  

Despite the big moves in futures, physical traders seemed unimpressed with USGC basis values little changed on the day. West Coast basis values on the other hand rallied after the roll to August pipeline cycles, pushing cash gasoline prices up by more than 16 cents on the day following yet another reported upset at an LA-area refinery. 

The EIA published its annual refinery capacity report Friday, noting the first increase in US refining capability since 2019, even though the report still does not include Exxon’s 250mb/day expansion in Beaumont or smaller additions from Valero Pt Arthur or Marathon Galveston Bay that occurred this year. The increase in the past year was all due to PBF Paulsboro bringing shuttered units back online in 2022 as East Coast refiners went from worst to first due to the fallout from the Russian invasion of Ukraine. Good news for those who don’t enjoy reading, the EIA is now publishing these notes on YouTube, despite the ongoing writers’ strike

After the Atlantic’s first hurricane of the season came and went over open water this past week, the NHC is tracking 2 more potential storm systems. One is targeting the east coast of Florida, Georgia and South Carolina while the other makes its way into Caribbean, but both are given just 20% odds of developing over the next 7 days. 

An EIA note last week took a closer look at the impact on tropical systems on Gulf Coast oil production and refining, forecasting a peak impact of a storm shutting in 80% of GOM oil output, and taking 8% of the country’s refining output offline for a month. This Reuters note details how refinery issues not caused by hurricanes have kept diesel inventories across the US low (outside of the West Coast where Renewable Diesel inventories don’t show up in official numbers yet) and making the system more susceptible to a price shock should a storm hit.

Pretty much everyone Is betting the FED will raise their target interest rate by 25 points tomorrow, with the CME’s Fedwatch tool showing a 99% probability of that outcome, while 1% thinks the FED may raise by 50 points. It’s worth noting that a month ago 28% of bets were placed on the FED holding rates steady at this meeting, and yet equities have rallied in the face of tighter monetary policy, in another sign of shifting expectations from economists that tend to predict 5 out of every 2 recessions.

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

Market Talk Update 07.25.2023

News & Views

View All
Pivotal Week For Price Action
Market TalkFriday, Sep 29 2023

The 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.

Pivotal Week For Price Action
Market TalkThursday, Sep 28 2023

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.

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