Gasoline Prices Are Down About A Nickel This Morning After Reaching A Fresh Record High Overnight

Market TalkMonday, Jun 6 2022
Pivotal Week For Price Action

Gasoline prices are down about a nickel this morning after reaching a fresh record high overnight, while the rest of the complex is trading close to unchanged to start the week.  

The EPA released its final volume mandates for the RFS from 2020-2022 Friday, which raised the ethanol mandate for this year beyond previous estimates, and helped RIN prices continue their rally. The ruling also defined a pathway for bio intermediates, which are biofuels that require processing at multiple facilities, to qualify for the RFS program, which could add to the supply of both advanced biofuel and cellulosic fuels. In addition, the agency also denied 69 petitions for small refinery hardship waivers to the RFS. 

Money managers added to their net length across the energy complex last week, with new long positions and some heavy short covering both contributing to the increase. While the large speculators seem to be getting more comfortable betting on higher prices, the positions are still small in comparison to previous years, and open interest remains near multi-year lows, suggesting the ongoing volatility is still too hot for some to handle. 

Baker Hughes reported no net change in the count of rigs drilling for oil and gas in the US last week. A Rystad energy report last week forecast that the Permian basin will outpace the rest of the world in production growth in the coming year, even though the rig count remains well below pre-COVID levels. 

The US has made a small concession on Venezuelan sanctions, allowing 2 European companies to take delivery of previously off-limits oil, so long as that oil is delivered in Europe and not sold in the open market. While this is a big step in terms of the US state department acknowledging the global shortage of energy supplies, the actual volumes in play so far are quite small and shouldn’t impact prices much.

Today’s interesting read, from the Financial Times: The end of the term ESG

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Market Talk Update 06.06.2022

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Pivotal Week For Price Action
Market TalkWednesday, Jun 7 2023

Energy Prices Fluctuate: Chinese Imports Surge, Saudi Arabia Cuts Output and Buys Golf

Energy prices continue their back-and-forth trading, starting Wednesday’s session with modest gains, after a round of selling Tuesday wiped out the Saudi output cut bounce. 

A surge in China’s imports of crude oil and natural gas seem to be the catalyst for the early move higher, even though weak export activity from the world’s largest fuel buyer suggests the global economy is still struggling. 

New tactic?  Saudi Arabia’s plan to voluntarily cut oil production by another 1 million barrels/day failed to sustain a rally in oil prices to start the week, so they bought the PGA tour

The EIA’s monthly Short Term Energy Outlook raised its price forecast for oil, citing the Saudi cuts, and OPEC’s commitment to extend current production restrictions through 2024. The increase in prices comes despite reducing the forecast for US fuel consumption, as GDP growth projections continue to decline from previous estimates. 

The report included a special article on diesel consumption, and its changing relationship with economic activity that does a good job of explaining why diesel prices are $2/gallon cheaper today than they were a year ago.   

The API reported healthy builds in refined product inventories last week, with distillates up 4.5 million barrels while gasoline stocks were up 2.4 million barrels in the wake of Memorial Day. Crude inventories declined by 1.7 million barrels on the week. The DOE’s weekly report is due out at its normal time this morning. 

We’re still waiting on the EPA’s final ruling on the Renewable Fuel Standard for the next few years, which is due a week from today, but another Reuters article suggests that eRINs will not be included in this round of making up the rules.

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Pivotal Week For Price Action
Pivotal Week For Price Action
Market TalkTuesday, Jun 6 2023

Energy Prices Retreat, Global Demand Concerns Loom

So much for that rally. Energy prices have given back all of the gains made following Saudi Arabia’s announcement that it would voluntarily withhold another 1 million barrels/day of oil production starting in July. The pullback appears to be rooted in the ongoing concerns over global demand after a soft PMI report for May while markets start to focus on what the FED will do at its FOMC meeting next week.

The lack of follow through to the upside leaves petroleum futures stuck in neutral technical territory, and since the top end of the recent trading range didn’t break, it seems likely we could see another test of the lower end of the range in the near future.  

RIN prices have dropped sharply in the past few sessions, with traders apparently not waiting on the EPA’s final RFS ruling – due in a week – to liquidate positions. D6 values dropped to their lowest levels in a year Monday, while D4 values hit a 15-month low. In unrelated news, the DOE’s attempt to turn seaweed into biofuels has run into a whale problem.  

Valero reported a process leak at its Three Rivers TX refinery that lasted a fully 24 hours.  That’s the latest in a string of upsets for south Texas refineries over the past month that have kept supplies from San Antonio, Austin and DFW tighter than normal. Citgo Corpus Christi also reported an upset over the weekend at a sulfur recovery unit. Several Corpus facilities have been reporting issues since widespread power outages knocked all of the local plants offline last month.  

Meanwhile, the Marathon Galveston Bay (FKA Texas City) refinery had another issue over the weekend as an oil movement line was found to be leaking underground but does not appear to have impacted refining operations at the facility. Gulf Coast traders don’t seem concerned by any of the latest refinery issues, with basis values holding steady to start the week.

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