Gasoline Prices Don’t Look As Bullish On The Charts With Only 3 Trading Days Left, Hurricane Franklin Reached Category 4 Status

Market TalkTuesday, Aug 29 2023
Pivotal Week For Price Action

Refined product prices came back to earth Monday after the tank fire at the Garyville LA refinery that sent prices soaring on Friday was finally extinguished with reports suggesting that no damage was done to operating units at the refinery. 

The 10-cent drop puts ULSD at risk of snapping its record-setting 9 consecutive weeks of gains, even though the trend line that’s seen prices rally nearly $1/gallon during that time is still intact at the moment.  If we see a sustained move below $3.20 for ULSD, the charts suggest we could see another 10-20 cents of downside soon as a natural correction of this big rally, but if the $3.20 range support layers hold, the door is still open to rally north of $3.50 as we head into fall.

Gasoline prices meanwhile don’t look nearly as bullish on the charts, and there are only 3 trading days left before the last summer-spec futures contract of the year goes off the board and we start the winter gasoline season.  Both the technical and seasonal factors suggest that outside of a major supply disruption, it’s more likely we’ll see RBOB trading at $2.40 soon than it is we’ll see a run at $3.

Idalia is currently a category 1 hurricane and is expected to reach category 3 status before making landfall in Florida’s big bend region overnight.  Port Tampa Bay is still at risk of flooding from storm surge which is expected to be 4-7 feet in that area, but the latest path keeps the worst parts of the storm well away from major population centers and ports, which means the impacts on supply should be localized despite the dangerous nature of this storm.  Numerous ports in Florida and further east in the Gulf Coast have begun to limit operations as the storm passes and terminals in the area are expected to close around noon today. Non-essential personnel are being moved off of oil platforms in the Gulf of Mexico, but the storm is far enough east that it shouldn’t do any damage to production or refining assets.

The other type of storm in Tampa that’s been causing all sorts of headaches for suppliers attempting to top off tanks ahead of Idalia may require an EPA waiver to allow the contaminated product to be re-loaded onto ships and sent back to a refinery rather than attempting to truck out millions of gallons of transmix, which could take months given the location and looming demand for trucks in the wake of the hurricane.

Hurricane Franklin has reached Category 4 status in a reminder of what record warm water temperatures can produce as it moves north roughly 500 miles east of Jacksonville FL this morning but is hooking east and will stay far off shore. The NHC is tracking 2 other systems in the Atlantic, both given 50% odds of being named, but both looking like they’ll also stay out to sea.

The EPA issued a waiver for El Paso’s boutique 7.0lb RVP gasoline Monday, citing unplanned outages at the Alon Big Spring and Marathon El Paso refineries that have caused fuel shortages in recent weeks. The waiver allows for 9lb RVP gasoline, or 10lb RVP if blended with ethanol, through the end of the summer-grade season ending September 16.

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Market Talk Update 08.29.2023

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Market TalkFriday, Apr 12 2024

Charts Continue To Favor A Push Towards The $3 Mark For Gasoline, While Diesel Prices May Need To Be Dragged Along For The Ride

Energy prices are rallying once again with the expected Iranian attack on Israel over the weekend appearing to be the catalyst for the move. RBOB gasoline futures are leading the way once again, trading up more than a nickel on the day to reach a fresh 7 month high at $2.8280. Charts continue to favor a push towards the $3 mark for gasoline, while diesel prices may need to be dragged along for the ride.

So far it appears that Motiva Pt. Arthur is the only refinery that experienced a noteworthy upset from the storms that swept across the southern half of the country this week. Those storms also delayed the first round of the Masters, which matters more to most traders this week than the refinery upset.

Chevron’s El Segundo refinery in the LA-area reported an unplanned flaring event Thursday, but the big moves once again came from the San Francisco spot market that saw diesel prices rally sharply to 25 cent premiums to futures. The Bay Area now commands the highest prices for spot gasoline and diesel as the conversion of 1 out of the 4 remaining refineries to renewable output is not-surprisingly creating disruptions in the supply chain.

RIN values dropped back below the 50-cent mark, after the recovery rally ran out of steam last week. The EPA is facing numerous legal challenges on the RFS and other policies, and now half of the US states are challenging the agency’s new rule restricting soot emissions. That lack of clarity on what the law actually is or may be is having widespread impacts on environmental credits around the world and makes enforcement of such policies a bit of a joke. Speaking of which, the EPA did just fine a South Carolina company $2.8 million and require that it buy and retire 9 million RINs for improper reporting from 2013-2019. The cost of those RINs now is about 1/3 of what it was this time last year, so slow playing the process definitely appears to have paid off in this case.

The IEA continues to do its best to downplay global demand for petroleum, once again reducing its economic outlook in its Monthly Report even though the EIA and OPEC continue to show growth, and the IEA’s own data shows “Robust” activity in the first quarter of the year. The IEA has come under fire from US lawmakers for changing its priorities from promoting energy security, to becoming a cheerleader for energy transition at the expense of reality.

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

Pivotal Week For Price Action
Market TalkThursday, Apr 11 2024

Diesel Prices Continue To Be The Weak Link In The Energy Chain

Energy prices are ticking modestly lower this morning, despite warnings from the US that an Iranian attack on Israeli interest is “imminent” and reports of weather induced refinery outages, as demand fears seem to be outweighing supply fears temporarily. Diesel prices continue to be the weak link in the energy chain with both the DOE and OPEC reports giving the diesel bears reason to believe lower prices are coming.

The March PPI report showed a lower inflation reading for producers than the Consumer Price Index report, leading to an immediate bounce in equity futures after the big wave of selling we saw yesterday. To put the CPI impact in perspective, a week ago Fed Fund futures were pricing in an 80% chance of an interest rate cut by the FED’s July 31 meeting, and today those odds have shrunk to 40% according to the CME’s FedWatch tool.

OPEC’s monthly oil market report held a steady outlook for economic growth and oil demand from last month’s report, noting the healthy momentum of economic activity in the US. The cartel’s outlook also highlighted significant product stock increases last month that weighed heavily on refining margins, particularly for diesel. Given the US focus on ULSD futures that are deliverable on the East Coast, which continues to have relatively tight supply for diesel, it’s easy to overlook how quickly Asian markets have gotten long on distillates unless of course you’re struggling through the slog of excess supply in numerous west coast markets these days. The OPEC report noted this in a few different ways, including a 33% decline in Chinese product exports as the region simply no longer needs its excess. The cartel’s oil output held steady during March with only small changes among the countries as they hold to their output cut agreements.

If you believe the DOE’s diesel demand estimates, there’s reason to be concerned about domestic consumption after a 2nd straight week of big declines. The current estimate below 3 million barrels/day is something we typically only see the week after Christmas when many businesses shut their doors. We know the DOE’s figures are missing about 5% of total demand due to Renewable Diesel not being included in the weekly stats, and it’s common to see a drop the week after a holiday, but to lose more than a million barrels/day of consumption in just 2 weeks will keep some refiners on edge.

Most PADDs continue to follow their seasonal trends on gasoline with 1 and 2 still in their normal draw down period, while PADD 3 is rebuilding inventories faster than normal following the transition to summer grade products. That rapid influx of inventory in PADD 3 despite robust export activity helps explain the spike in premiums to ship barrels north on Colonial over the past 2 weeks. Gasoline also saw a sizeable drop in its weekly demand estimate, but given the holiday hangover effect, and the fact that it’s in line with the past 2 years, there’s not as much to be concerned about with that figure. While most of the activity happens in PADDs 1-3, the biggest disconnect is coming in PADDs 4 and 5, with gasoline prices in some Colorado markets being sold 50 cents or more below futures, while prices in some California markets are approaching 90 cents above futures.

Severe weather sweeping across the southern US knocked several units offline at Motiva’s Pt Arthur plant (the country’s largest refinery) Wednesday, and it seems likely that Louisiana refineries will see some disruption from the storm that spawned tornadoes close to the Mississippi River refining hub. So far cash markets haven’t reacted much, but they’ll probably need more time to see what damage may have occurred.

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