Have Fuel Prices Found A Floor?

Market TalkTuesday, Aug 9 2022
Pivotal Week For Price Action

Have fuel prices found a floor?

After dropping 60 cents in a week and a half, diesel prices have bounced 17 cents in the past 24 hours, and gasoline prices are up nearly 20 cents since bottoming out last Thursday.  While crude oil prices have also bounced, WTI is up $5/barrel from Thursday’s lows, they’re not keeping pace with the recovery in refined products, suggesting this move may be driven by spread buyers as we head into the fall maintenance & storm seasons with a refinery network that’s more vulnerable than it’s been in decades. 

There isn’t much in the way of a headline to pin the sudden reversal in diesel prices on, and in fact European natural gas prices are pulling back as inventories have recovered in recent days, which would tend to act as a drag on diesel prices. This suggests the move may be more technical in nature, as trading programs and some humans see the latest wave of selling as a good buying opportunity after the head and shoulders and descending triangle patterns that foreshadowed lower prices have now been completed. The first big test for the bulls to decide if they’re serious about this rally is to get diesel prices back north of $3.50, and gasoline prices back above $3.

The latest round of negotiations with Iran over its nuclear ambitions ended without any sign of progress, reducing the odds that Iranian oil exports will legally re-enter the world market. 

The national hurricane center still gives a 40% chance the storm moving over the Atlantic will get a name this week, and the long range forecasts suggest there will be more storms coming soon as the hurricane season reaches its peak a month from now.

HF Sinclair proved that the previous year was a great time to be buying refineries, joining its US peers reporting huge profits for the 2nd quarter. While the company’s newly acquired facilities netted nearly $30/barrel after operating costs, the renewable diesel operations showed heavy losses for the quarter, suggesting that turning soybeans into motorfuel may not be the field of dreams many have been hoping for, even with nearly $5/gallon in various government tax credits and subsidies and diesel prices at elevated levels. 

Speaking of which, the spending bill passed in the Senate this weekend includes the extension of several existing biofuel credits, and the addition of several new credits to encourage more production. One detail that’s already expected to have unforeseen consequences is that Sustainable Aviation Fuels (SAF) will get $.25-$.75/gallon more credits than Renewable Diesel, which will likely mean a shift by some producers away from on-road fuels given the limited feedstocks available to make fuel out of food.

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Market TalkFriday, Apr 19 2024

Gasoline Futures Are Leading The Way Lower This Morning

It was a volatile night for markets around the world as Israel reportedly launched a direct strike against Iran. Many global markets, from equities to currencies to commodities saw big swings as traders initially braced for the worst, then reversed course rapidly once Iran indicated that it was not planning to retaliate. Refined products spiked following the initial reports, with ULSD futures up 11 cents and RBOB up 7 at their highest, only to reverse to losses this morning. Equities saw similar moves in reverse overnight as a flight to safety trade soon gave way to a sigh of relief recovery.

Gasoline futures are leading the way lower this morning, adding to the argument that we may have seen the spring peak in prices a week ago, unless some actual disruption pops up in the coming weeks. The longer term up-trend is still intact and sets a near-term target to the downside roughly 9 cents below current values. ULSD meanwhile is just a nickel away from setting new lows for the year, which would open up a technical trap door for prices to slide another 30 cents as we move towards summer.

A Reuters report this morning suggests that the EPA is ready to announce another temporary waiver of smog-prevention rules that will allow E15 sales this summer as political winds continue to prove stronger than any legitimate environmental agenda. RIN prices had stabilized around 45 cents/RIN for D4 and D6 credits this week and are already trading a penny lower following this report.

Delek’s Big Spring refinery reported maintenance on an FCC unit that would require 3 days of work. That facility, along with several others across TX, have had numerous issues ever since the deep freeze events in 2021 and 2024 did widespread damage. Meanwhile, overnight storms across the Midwest caused at least one terminal to be knocked offline in the St. Louis area, but so far no refinery upsets have been reported.

Meanwhile, in Russia: Refiners are apparently installing anti-drone nets to protect their facilities since apparently their sling shots stopped working.

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

Pivotal Week For Price Action
Market TalkThursday, Apr 18 2024

The Sell-Off Continues In Energy Markets, RBOB Gasoline Futures Are Now Down Nearly 13 Cents In The Past Two Days

The sell-off continues in energy markets. RBOB gasoline futures are now down nearly 13 cents in the past two days, and have fallen 16 cents from a week ago, leading to questions about whether or not we’ve seen the seasonal peak in gasoline prices. ULSD futures are also coming under heavy selling pressure, dropping 15 cents so far this week and are trading at their lowest level since January 3rd.

The drop on the weekly chart certainly takes away the upside momentum for gasoline that still favored a run at the $3 mark just a few days ago, but the longer term up-trend that helped propel a 90-cent increase since mid-December is still intact as long as prices stay above the $2.60 mark for the next week. If diesel prices break below $2.50 there’s a strong possibility that we see another 30 cent price drop in the next couple of weeks.

An unwind of long positions after Iran’s attack on Israel was swatted out of the sky without further escalation (so far anyway) and reports that Russia is resuming refinery runs, both seeming to be contributing factors to the sharp pullback in prices.

Along with the uncertainty about where the next attacks may or may not occur, and if they will have any meaningful impact on supply, come no shortage of rumors about potential SPR releases or how OPEC might respond to the crisis. The only thing that’s certain at this point, is that there’s much more spare capacity for both oil production and refining now than there was 2 years ago, which seems to be helping keep a lid on prices despite so much tension.

In addition, for those that remember the chaos in oil markets 50 years ago sparked by similar events in and around Israel, read this note from the NY Times on why things are different this time around.

The DOE’s weekly status report was largely ignored in the midst of the big sell-off Wednesday, with few noteworthy items in the report.

Diesel demand did see a strong recovery from last week’s throwaway figure that proves the vulnerability of the weekly estimates, particularly the week after a holiday, but that did nothing to slow the sell-off in ULSD futures.

Perhaps the biggest next of the week was that the agency made its seasonal changes to nameplate refining capacity as facilities emerged from their spring maintenance.

PADD 2 saw an increase of 36mb/day, and PADD 3 increased by 72mb/day, both of which set new records for regional capacity. PADD 5 meanwhile continued its slow-motion decline, losing another 30mb/day of capacity as California’s war of attrition against the industry continues. It’s worth noting that given the glacial pace of EIA reporting on the topic, we’re unlikely to see the impact of Rodeo’s conversion in the official numbers until next year.

Speaking of which, if you believe the PADD 5 diesel chart below that suggests the region is running out of the fuel, when in fact there’s an excess in most local markets, you haven’t been paying attention. Gasoline inventories on the West Coast however do appear consistent with reality as less refining output and a lack of resupply options both continue to create headaches for suppliers.

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