In Like A Lion And Out Like A Lamb

Market TalkFriday, Mar 1 2019
Gasoline Futures Leading Energy Complex Higher

The phrase “In like a lion and out like a lamb” that’s been used for many years to describe March weather seems a good fit for 2019 as multiple winter storms stretch across large swaths of the US. The opposite seems to be holding true for energy trading, as an often volatile month has begun with a very quiet start. WTI did manage to reach a fresh 3.5 month high overnight before giving up those gains and trading near flat this morning, so there is still a decent chance of another technical breakout that could kick off a little March madness.

News of a sale of oil from the Strategic Petroleum Reserve is making its way through the headlines, with writers stretching to find potential implications as possibly being signals to the world oil market. In reality, the sale was part of a budget bill passed in 2015 that is intended to fund upgrades to the facilities that house the US’s emergency oil stockpiles.

The spread between March and April RBOB continued its strong rally to end February, with the March contract (the last winter-grade contract of the season) expiring just 11 cents below the April (summer-grade rvp) contract. It’s been nearly a decade since the winter/summer spread has been that small to end February (no coincidence that it’s been nearly a decade since PADD 1 refinery runs were this low) and that small spread is likely to disappoint those market players along the East Coast who have become used to capitalizing on wider discounts during the RVP transition.

The forward curve charts below show that while the rally in front month futures has been dramatic over the past month, prices 2-3 years from now have not followed suit. This suggests that the market expects supply & demand to be relatively more balanced down the road, and is likely a sign that oil producers have been taking advantage of the recent run-up in prices to hedge their production in 2020 and beyond.

RIN values for both ethanol and biodiesel dipped Thursday after the Senate narrowly approved the EPA’s interim director promotion to full time chief of the agency. While the political football known as the RFS still seems unlikely to be changed with a split congress, it seems the small market reaction is acknowledgement that the bio-lobby had failed in their efforts to prevent this move.

The EIA meanwhile is predicting a stable market for biofuels over the next 2 years with steady production and consumption in a new note released this morning.

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Pivotal Week For Price Action
Market TalkThursday, Mar 28 2024

Energy Markets Are Ticking Modestly Higher Heading Into The Easter Weekend With Crude Oil Prices Leading The Way Up About $1.25/Barrel Early Thursday Morning

Energy markets are ticking modestly higher heading into the Easter Weekend with crude oil prices leading the way up about $1.25/barrel early Thursday morning, while gasoline prices are up around 2.5 cents and ULSD futures are about a penny.

Today is the last trading day for April HO and RBOB futures, an unusually early expiration due to the month ending on a holiday weekend. None of the pricing agencies will be active tomorrow since the NYMEX and ICE contracts are completely shut, so most rack prices published tonight will carry through Monday.

Gasoline inventories broke from tradition and snapped a 7 week decline as Gulf Coast supplies increased, more than offsetting the declines in PADDs 1, 2 and 5. With gulf coast refiners returning from maintenance and cranking out summer grade gasoline, the race is now officially on to move their excess through the rest of the country before the terminal and retail deadlines in the next two months. While PADD 3 run rates recover, PADD 2 is expected to see rates decline in the coming weeks with 2 Chicago-area refineries scheduled for planned maintenance, just a couple of weeks after BP returned from 7 weeks of unplanned repairs.

Although terminal supplies appear to be ample around the Baltimore area, we have seen linespace values for shipping gasoline on Colonial tick higher in the wake of the tragic bridge collapse as some traders seem to be making a small bet that the lack of supplemental barge resupply may keep inventories tight until the barge traffic can move once again. The only notable threat to refined product supplies is from ethanol barge traffic which will need to be replaced by truck and rail options, but so far that doesn’t seem to be impacting availability at the rack. Colonial did announce that they would delay the closure of its underutilized Baltimore north line segment that was scheduled for April 1 to May 1 out of an “abundance of caution”.

Ethanol inventories reached a 1-year high last week as output continues to hold above the seasonal range as ethanol distillers seem to be betting that expanded use of E15 blends will be enough to offset sluggish gasoline demand. A Bloomberg article this morning also highlights why soybeans are beginning to displace corn in the subsidized food to fuel race.

Flint Hills reported a Tuesday fire at its Corpus Christi West facility Wednesday, although it’s unclear if that event will have a material impact on output after an FCC unit was “stabilized” during the fire. While that facility isn’t connected to Colonial, and thus doesn’t tend to have an impact on USGC spot pricing, it is a key supplier to the San Antonio, Austin and DFW markets, so any downtime may be felt at those racks.

Meanwhile, P66 reported ongoing flaring at its Borger TX refinery due to an unknown cause. That facility narrowly avoided the worst wildfires in state history a few weeks ago but is one of the frequent fliers on the TCEQ program with upsets fairly common in recent years.

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
Pivotal Week For Price Action
Market TalkWednesday, Mar 27 2024

Most Energy Contracts Are Ticking Lower For A 2nd Day After A Trickle Of Selling Picked Up Steam Tuesday

Most energy contracts are ticking lower for a 2nd day after a trickle of selling picked up steam Tuesday. ULSD futures are down a dime from Monday’s highs and RBOB futures are down 7 cents.

Diesel prices continue to look like the weak link in the energy chain, with futures coming within 1 point of their March lows overnight, setting up a test of the December lows around $2.48 if that resistance breaks down. Despite yesterday’s slide, RBOB futures still look bullish on the weekly charts, with a run towards the $3 mark still looking like a strong possibility in the next month or so.

The API reported crude stocks increased by more than 9 million barrels last week, while distillates were up 531,000 and gasoline stocks continued their seasonal decline falling by 4.4 million barrels. The DOE’s weekly report is due out at its normal time this morning.

RIN values have recovered to their highest levels in 2 months around $.59/RIN for D4 and D6 RINs, even though the recovery rally in corn and soybean prices that had helped lift prices off of the 4 year lows set in February has stalled out. Expectations for more biofuel production to be shut in due to weak economics with lower subsidy values seems to be encouraging the tick higher in recent weeks, although prices are still about $1/RIN lower than this time last year.

Reminder that Friday is one of only 3 annual holidays in which the Nymex is completely shut, so no prices will be published, but it’s not a federal holiday in the US so banks will be open.

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