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, May 17 2024

The Recovery Rally In Energy Markets Continues For A 3rd Day

The recovery rally in energy markets continues for a 3rd day with refined product futures both up more than a dime off of the multi-month lows we saw Wednesday morning. The DJIA broke 40,000 for the first time ever Thursday, and while it pulled back yesterday, US equity futures are suggesting the market will open north of that mark this morning, adding to the sends of optimism in the market.

Despite the bounce in the back half of the week, the weekly charts for both RBOB and ULSD are still painting a bearish outlook with a lower high and lower low set this week unless the early rally this morning can pick up steam in the afternoon. It does seem like the cycle of liquidation from hedge funds has ended however, so it would appear to be less likely that we’ll see another test of technical support near term after this bounce.

Ukraine hit another Russian refinery with a drone strike overnight, sparking a fire at Rosneft’s 240mb/day Tuapse facility on the black sea. That plant was one of the first to be struck by Ukrainian drones back in January and had just completed repairs from that strike in April. The attack was just one part of the largest drone attack to date on Russian energy infrastructure overnight, with more than 100 drones targeting power plants, fuel terminals and two different ports on the Black Sea. I guess that means Ukraine continues to politely ignore the White House request to stop blowing up energy infrastructure in Russia.

Elsewhere in the world where lots of things are being blown up: Several reports of a drone attack in Israel’s largest refining complex (just under 200kbd) made the rounds Thursday, although it remains unclear how much of that is propaganda by the attackers and if any impact was made on production.

The LA market had 2 different refinery upsets Thursday. Marathon reported an upset at the Carson section of its Los Angeles refinery in the morning (the Carson facility was combined with the Wilmington refinery in 2019 and now reports as a single unit to the state, but separately to the AQMD) and Chevron noted a “planned” flaring event Thursday afternoon. Diesel basis values in the region jumped 6 cents during the day. Chicago diesel basis also staged a recovery rally after differentials dropped past a 30 cent discount to futures earlier in the week, pushing wholesale values briefly below $2.10/gallon.

So far there haven’t been any reports of refinery disruptions from the severe weather than swept across the Houston area Thursday. Valero did report a weather-related upset at its Mckee refinery in the TX panhandle, although it appears they avoided having to take any units offline due to that event.

The Panama Canal Authority announced it was increasing its daily ship transit level to 31 from 24 as water levels in the region have recovered following more than a year of restrictions. That’s still lower than the 39 ships/day rate at the peak in 2021, but far better than the low of 18 ships per day that choked transit last year.

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

Pivotal Week For Price Action
Market TalkThursday, May 16 2024

Energy Prices Found A Temporary Floor After Hitting New Multi-Month Lows Wednesday

Energy prices found a temporary floor after hitting new multi-month lows Wednesday morning as a rally to record highs in US equity markets and a modestly bullish DOE report both seemed to encourage buyers to step back into the ring.

RBOB and ULSD futures both bounced more than 6 cents off of their morning lows, following a CPI report that eased inflation fears and boosted hopes for the stock market’s obsession of the FED cutting interest rates. Even though the correlation between energy prices and equities and currencies has been weak lately, the spillover effect on the bidding was clear from the timing of the moves Wednesday.

The DOE’s weekly report seemed to add to the optimism seen in equity markets as healthy increases in the government’s demand estimates kept product inventories from building despite increased refinery runs.

PADD 3 diesel stocks dropped after large increases in each of the past 3 weeks pushed inventories from the low end of their seasonal range to average levels. PADD 2 inventories remain well above average which helps explain the slump in mid-continent basis values over the past week. Diesel demand showed a nice recovery on the week and would actually be above the 5 year average if the 5% or so of US consumption that’s transitioned to RD was included in these figures.

Gasoline inventories are following typical seasonal patterns except on the West Coast where a surge in imports helped inventories recover for a 3rd straight week following April’s big basis rally.

Refiners for the most part are also following the seasonal script, ramping up output as we approach the peak driving demand season which unofficially kicks off in 10 days. PADD 2 refiners didn’t seem to be learning any lessons from last year’s basis collapse and rapidly increased run rates last week, which is another contributor to the weakness in midwestern cash markets. One difference this year for PADD 2 refiners is the new Transmountain pipeline system has eroded some of their buying advantage for Canadian crude grades, although those spreads so far haven’t shrunk as much as some had feared.

Meanwhile, wildfires are threatening Canada’s largest oil sands hub Ft. McMurray Alberta, and more than 6,000 people have been forced to evacuate the area. So far no production disruptions have been reported, but you may recall that fires in this region shut in more than 1 million barrels/day of production in 2016, which helped oil prices recover from their slump below $30/barrel.

California’s Air Resources Board announced it was indefinitely delaying its latest California Carbon Allowance (CCA) auction – in the middle of the auction - due to technical difficulties, with no word yet from the agency when bidders’ security payments will be returned, which is pretty much a nice microcosm for the entire Cap & Trade program those credits enable.

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