Gasoline Prices Tried To Drag The Petroleum Complex Higher Monday And Diesel Prices Are Trying To Drag Them Lower Today

Market TalkTuesday, Jul 19 2022
Pivotal Week For Price Action

Gasoline prices tried to drag the petroleum complex higher Monday and Diesel prices are trying to drag them lower today. ULSD futures were down 14 cents at their low point this morning, pulling RBOB down a nickel – wiping out its gains from yesterday - and WTI briefly back below the $100 mark. Expect more of this back and forth action as long as prices remain stuck consolidating within the range set the past two weeks.

Force Majeure has become a theme this week around the world.  Keystone pipeline declared Force Majeure after a nearby power substation was vandalized and forced the line to reduce operating rates. The relative lack of reaction in US crude markets suggests that this event is expected to be short-lived. 

The last functioning refinery in South Africa meanwhile was forced to declare Force Majeure due to delays in crude oil deliveries, sparking fears in a country that’s already heavily reliant on imports of fuel which are much harder to come by this year.   

Last, and certainly not least, much of Europe is nervously awaiting news on whether or not Russia will reopen the Nordstream natural gas pipeline in time to restock for the winter after Force Majeure was declared. Interestingly enough, Canada is playing a central role in the Nordstream drama as it exempted sanctions on Russia to allow repairs to a turbine that may allow the pipeline to come back online, and take away one of Russia’s excuses for turning off the gas. 

Currency swings are also having a heavy influence in the price action for energy and other commodities recently, with the inverse correlation between the US Dollar and WTI prices strengthening in recent weeks after going dormant for a while. Expect that trend to continue at least through next week’s FOMC announcement, which is all but assured to see at least a 75 point rate increase. With the FED doing its best to telegraph its moves to try and avoid shocking the market into a recession as it shuts down the money printing presses, questions over the European Central Bank’s plans seem to be creating some volatility this week and getting some of the credit for the choppy action in commodity markets. 

After disappointing results in trying to get more petroleum production from OPEC and US refiners, and a failure in the Senate to move forward on climate initiatives, the White House is reportedly considering declaring a climate emergency this week in an effort to thread the needle between lowering energy prices, and lowering energy emissions to appease voters ahead of the election. That said, the recent Supreme Court decision restricting the EPA’s authority on such issues may make any declarations largely meaningless. 

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Market Talk Update 7.19.22

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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