Huge Price Reversal From 6-Year Highs

Market TalkWednesday, Jul 7 2021
Pivotal Week For Price Action

Volatility is back in energy markets after a huge price reversal from 6 year highs in Tuesday’s session was followed up with more whipsaw trading this morning. After Tuesday’s outside down reversal (which the text book will tell you is a bearish signal) we saw prices rally overnight, wiping out more than half of the previous losses, only to see those gains wiped out in 10 minutes of heavy selling this morning before more modest buying picked up again.  

The reversals are putting energy prices up to their biggest technical test in 2 months, threatening to finally put an end to the rally that’s been keeping prices moving steadily higher for the past 8 months. Volatile action is often seen when a trend comes to an end, so we could be seeing energy prices finding a top, but they haven’t yet dropped below their trend-lines, so it’s too soon to say that the bull market is over.

Tuesday’s big swings were largely blamed on the OPEC drama, but the sell-off was much more widespread than just petroleum, impacting both equities and numerous other commodities, that suggests fear may be creeping back into the market after an extended period of re-opening fueled optimism seems to have run its course.  

While oil prices initially spiked when OPEC failed to come to an agreement, it quickly became clear that a lack of an agreement when the cartel is intentionally withholding production may actually be bearish for prices not bullish. Also, keep in mind that Saudi Arabia made its own production cuts – in excess of what the alliance agreed to – last year, so is free to reverse course and increase output whenever it wants.  In both price crashes of 2014 and 2020, we’ve seen the Saudis allow prices to drop to teach the Russians and Iranians (among others) a lesson, and it wouldn’t be surprising to see them do something similar to the UAE now. 

stronger US Dollar also got credit for the selling, as it often does any time commodities see a broad selloff. The problem with that theory is that the correlation between the dollar and energy price movements has been strongly positive lately, which is the opposite of what it’s “supposed” to be. That certainly doesn’t help explain why the dollar moving higher Tuesday was suddenly bearish for oil when the two have been moving higher in tandem for much of the past month.

RINs joined in on the reversal action, following grain and refined products by dropping 10 cents from where they were trading in the early going. Grain prices are seeing an early bounce this morning, as refined products were, which should encourage buyers that may have grown weary after multiple big drops in the past month.

Elsa was briefly upgraded back to Hurricane status, but has since weakened again to a tropical storm and is soon to make landfall on Florida’s northern Gulf Coast. So far no major disruptions to terminal operations have been reported, or are expected, although several facilities shut down temporarily while the storm passes.

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

Market Update (01A) 7.7.21

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Pivotal Week For Price Action
Pivotal Week For Price Action
Market TalkWednesday, Jul 17 2024

Energy Markets Are Trying To Find A Price Floor After Gasoline And Crude Oil Staged A Healthy Bounce To Minimize The Heavy Losses

Energy markets are trying to find a price floor after gasoline and crude oil staged a healthy bounce to minimize the heavy losses we saw early in Tuesday’s session. WTI is leading the move higher early Wednesday, up nearly $.90/barrel in the early going, while RBOB prices are up just under a penny.

Diesel continues to look like the weak link in the energy chain both technically and fundamentally. Tuesday the API reported a 4.9 million barrel build in diesel stocks, while gasoline inventories were only up 365,000 barrels, and crude oil stocks declined by more than 4.4 million barrels. The DOE’s weekly report is due out at its normal time this morning and it’s likely we’ll see a reduction in oil output and PADD 3 refining runs thanks to shut ins ahead of Hurricane Beryl, but otherwise the storm appears to be a relative non-issue with only 1 notable refining hiccup, that wasn’t even as bad as a midwestern Thunderstorm.

Chicago basis values rallied Tuesday after reports that Exxon had shut down the 250mb/day Joliet refinery following severe storms that knocked out power to the area Sunday. RBOB differentials surged nearly 9 cents on the day, while diesel diffs jumped more than a nickel. With 3 large refineries in close proximity, the Chicago cash market is notoriously volatile if any of those facilities has an upset. Back in May there was a one-day spike in gasoline basis of more than 50 cents/gallon after Joliet had an operating upset so don’t be surprised if there are bigger swings this week if the facility doesn’t come back online quickly.

Moving in the opposite direction, California basis values are heading the opposite direction with the transition to August scheduling pressuring CARBOB differentials in LA and San Francisco to their biggest discounts to prompt RBOB futures in more than 18 months. Gasoline imports into PADD 5 have held well above average levels over the past 2 months, which has more than offset the loss of the P66 Rodeo refinery’s output after it completed its conversion to RD production, in another sign of how growing refining capacity in China and other Asian countries may become more influential to the US. California regulators may also pat themselves on the back that their new plans to force refineries to report their gross profit monthly, in addition to the rules requiring all bulk trades in the state be reported must be driving the lower gasoline differentials, assuming they figure out what a basis differential is.

Meanwhile, California’s Carbon Allowance values have tumbled to their lowest levels in a year after a CARB presentation last week suggested the agency would be delaying long-anticipated tightening of the Cap and Trade program until 2026.

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

Pivotal Week For Price Action
Market TalkTuesday, Jul 16 2024

The Sell-Off In Energy Markets Continues, With Refined Products Reaching Their Lowest Levels In A Month Early In Tuesday’s Session

The sell-off in energy markets continues, with refined products reaching their lowest levels in a month early in Tuesday’s session. Reports of slowing growth in China, the world’s largest oil purchaser, is getting much of the credit for the slide in prices so far this week, although that doesn’t do much to explain why refined products are outpacing the drop in crude.

ULSD futures are leading the early move lower, trading down a nickel on the day, and marking a 19 cent drop since July 4th. There’s not much in the way of technical support for ULSD, so don’t be surprised if this sell-off continues to pick up steam.

With today’s slide, RBOB futures are down 17 cents from where they were trading on July 4th, and are just a couple of cents from testing their 200-day moving average. Should that support break, it looks like there’s a good chance to test the June lows around $2.29.

Physical markets are not offering any strength to the futures market with all 6 of the major cash markets for diesel across the US trading at a discount to ULSD futures, while only 1 gasoline market is trading at a premium to RBOB futures. That combination of weakness in futures and cash markets is going to be troubling for refiners who are seeing margins reduce during what is traditionally a strong time of year.

The EIA highlighted the energy trade between the US and Mexico in a report Monday, showing that despite so many claims of energy independence from Mexican officials, the actual amount of refined fuels and natural gas bought from the US continues to increase. That’s good news for many US refiners who have become more dependent on Mexican purchases to find a home for their output.

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