Hope Has Never Been Higher In The History Of The RBOB Market

Market TalkFriday, Mar 12 2021
Pivotal Week For Price Action

A year ago today gasoline prices dropped from $1.10/gallon to $.85, as traders awoke to the reality that the country was about to be placed on lockdown. What a year it’s been.

If you only watched futures prices, you’d think the country was facing a severe gasoline shortage now as RBOB prices have spiked to a 2 year high this week, even though in reality it’s diesel supply that’s facing shortages across large parts of the US. We are in the window of the typical spring gasoline rally however, and it’s safe to say hope has never been higher in the history of the RBOB market as the vaccines are finally shining a light at the end of the COVID tunnel. 

On top of the seasonal and emotional influences, RIN markets seem to be having a noticeable influence on pricing, as product prices need to move higher just to offset the increased cost of compliance with the RFS for refiners. RIN values are approaching their all-time highs this week with trades just a few cents away from the record spike we saw in 2013. As the chart below shows, not long after trading near the $1.50 mark in 2013, prices plummeted by more than $1.20 per RIN as the EPA finally acknowledged the blend wall that made the RFS mandates physically impossible to reach. Will it be different this time around? That will likely depend on how the supreme court rules this summer on refinery & environmental waiver requests.

Double Top? As of this writing, the high trade for RBOB is $2.1559, which matches the high trade from April of 2019 to the point, and could create a nice symmetric stopping point for the 4.5 month old rally that’s added nearly $1.20 to gasoline prices. If that plays out, we should see gasoline prices drop 30 cents or more, for no other reason than that’s what they normally do each year whenever the spring rally finally stalls out. That said, there’s a good chance based on the upward momentum that we see prices move through that resistance, which would open the door for a run at the 2018 highs in the $2.28 range.

The refinery recovery continues with improvements coming daily, but still more outages expected over the next week as the system refills. Basis values and rack spreads are returning to more normal levels as the consensus from physical traders is that the worst of the disruption is behind us and it’s just a matter of time until things settle down. Colonial pipeline is reportedly still slowing its line 2 due to limited diesel supplies, and maintenance activities, which will keep terminals all along the SE tight for at least another week. 

Drama in index land? Planned changes to add WTI pricing to the Brent oil index have been delayed after the industry rejected the plan. Given the long history of the parent company’s ability to make huge sums of money for index subscriptions, whether or not they’re grounded in reality, there’s little doubt that a new plan will be launched soon.  

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

TACenergy Market Update 3-12-21

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Market TalkFriday, Dec 1 2023

“Buy The Rumor, Sell The News” Seems To Be The Trading Pattern Of The Week

“Buy the Rumor, Sell the News” seems to be the trading pattern of the week as oil and refined products dropped sharply Thursday after OPEC & Friends announced another round of output cuts for the first quarter of next year. 

Part of the reason for the decline following that report is that it appears that the cartel wasn’t able to reach an official agreement on the plan for next year, prompting those that could volunteer their own production cuts without forcing restrictions on others. In addition, OPEC members not named Saudi Arabia are notorious for exceeding official quotas when they are able to, and Russia appears to be (surprise) playing games by announcing a cut that is made up of both crude oil and refined products, which are already restricted and thus allow an incremental increase of exports. 

Diesel futures are leading the way lower this morning, following a 13-cent drop from their morning highs Thursday, and came within 3-cents of a new 4-month low overnight. The prompt contract did leave a gap on the chart due to the backwardation between December and January contracts, which cut out another nickel from up front values.

Gasoline futures meanwhile are down 15-cents from yesterday’s pre-OPEC highs and are just 7-cents away from reaching a new 1-year low.  

Cash markets across most of the country are looking soft as they often do this time of year, with double digit discounts to futures becoming the rule across the Gulf Coast and Mid Continent. The West Coast is mixed with diesel prices seeing big discounts in San Francisco, despite multiple refinery upsets this week, while LA clings to small premiums. 

Ethanol prices continue to hold near multi-year lows this week as controversy over the fuel swirls. Corn growing states filed a motion this week trying to compel the courts to force the EPA to waive pollution laws to allow E15 blends. Meanwhile, the desire to grow even more corn to produce Jet Fuel is being hotly debated as the environmental impacts depend on which side of the food to fuel lobby you talk to.

The chaotic canal congestion in Panama is getting worse as authorities are continuing to reduce the daily number of ships transiting due to low water levels. Those delays are hitting many industries, energy included, and are now spilling over to one of the world’s other key shipping bottlenecks.

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

Pivotal Week For Price Action
Market TalkThursday, Nov 30 2023

No Official Word From OPEC Yet On Their Output Agreement For Next Year

Energy prices are pushing higher to start Thursday’s session after a big bounce Wednesday helped the complex maintain its upward momentum for the week.   

There’s no official word from OPEC yet on their output agreement for next year, but the rumor-mill is in high gear as always leading up to the official announcement, if one is actually made at all. A Reuters article this morning suggests that “sources” believe Saudi Arabia will continue leading the cartel with a voluntary output cut of around 1-million BPD to begin the year and given the recent drop in prices that seems like a logical move. 

We saw heavy selling in the immediate wake of the DOE’s weekly report Wednesday, only to see prices reverse course sharply later in the day. ULSD was down more than 9-cents for a few minutes following the report but bounced more than 7-cents in the afternoon and is leading the push higher this morning so far.

It’s common to see demand drop sharply following a holiday, particularly for diesel as many commercial users simply shut down their operations for several days, but last week’s drop in implied diesel demand was one of the largest on record for the DOE’s estimates. That drop in demand, along with higher refinery runs, helped push diesel inventories higher in all markets, and the weekly days of supply estimate jumped from below the 5-year seasonal range around 25 days of supply to above the high end of the range at 37 days of supply based on last week’s estimated usage although it’s all but guaranteed we’ll see a correction higher in demand next week.

Gasoline demand also slumped, dropping to the low end of the seasonal range, and below year-ago levels for the first time in 5-weeks. You’d never guess that based on the bounce in gasoline prices that followed the DOE’s report however, with traders appearing to bet that the demand slump in a seasonal anomaly and tighter than average inventories may drive a counter-seasonal price rally.

Refinery runs increased across the country as plants returned to service following the busiest fall maintenance season in at least 4-years. While total refinery run rates are still below last year’s levels, they’re now above the 5-year average with more room to increase as no major upsets have been reported to keep a large amount of throughput offline.

The exception to the refinery run ramp up comes from PADD 4 which was the only region to see a decline last week after Suncor apparently had another inopportune upset at its beleaguered facility outside Denver. 

The 2023 Atlantic Hurricane season officially ends today, and it will go down as the 4th most active season on record, even though it certainly didn’t feel too severe given that the US dodged most of the storms.  

Today is also the expiration day for December 2023 ULSD and RBOB futures so look to the January contracts (RBF and HOF) for price direction if your market hasn’t already rolled.

More refineries ready to change hands next year?  With Citgo scheduled to be auctioned off, Irving Oil undergoing a strategic evaluation, and multiple new refineries possibly coming online, 2024 was already looking to be a turbulent year for refinery owners. Phillips 66 was indicating that it may sell off some of its refinery assets, but a new activist investor may upend those plans, along with the company’s directors.

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