Info Overflow Leaves Energy Futures Mixed

Market TalkTuesday, Jan 17 2023
Pivotal Week For Price Action

It’s a mixed bag for energy markets returning from Monday’s partial holiday as traders digest a data deluge from Davos, China, and OPEC, while the recent recovery rally faces its first significant technical resistance. Small losses in yesterday’s partial session have turned to small gains this morning for RBOB futures, while distillates have gone the opposite direction, turning yesterday’s small gains into minor losses this morning. 

The world’s largest oil buyer has a major problem with demographics that is signaling the end of decades of rapid economic growth, even as near term projections show consumption rebounding as the country reopens its economy

China’s refinery runs declined for the first time since 2001 last year, despite new facilities that added more than 500,000 barrels/day of production capacity, as the country struggled with how to deal with slumping domestic demand due to its COVID policies, while the rest of the world was clamoring for its exports. A surge in export activity to end the year and higher export quotas for 2023 have led to optimism that European fuel buyers will be able to make ends meet, although the lack of clarity and internal conflict within the Chinese regime makes it very challenging to project. 

Meanwhile, 5 people were killed and 30 injured after an explosion and fire at a Chinese oil refinery and petrochemical plant Sunday. While the loss in output may not move the needle as the facility was relatively small and not running at capacity anyway, it may provide the state another reason to tighten the screws on its independent facilities in favor of the government owned plants as it did last year. OPEC’s monthly oil market report revised its economic growth forecasts higher as several key economies fared better in 2022 than previously thought. Despite the better than expected figures for last year, the report left its outlook for 2023 unchanged due to numerous uncertainties surrounding monetary policy, COVID, and geopolitical tensions. Sticking with the theme of the day, the report also highlighted how Chinese export quotas may put downward pressure on product prices and refining margins. OPEC’s oil production increased by 91mb/day during December due to increases from Nigeria, Libya and Venezuela who aren’t bound by the production cut agreements given their wild-card government status.

Exxon is reportedly 2 weeks away from starting up its new 250,000 barrel/day crude unit at its Beaumont refinery, which will make that facility the 2nd largest in the country and top 10 in the world. While that new capacity will temporarily end a string of reductions in the US that started in 2019 and took roughly 7% of capacity off the table, the increase won’t last long as Houston Refining is still scheduled to shutter its facility later in the year and offset the Beaumont gains.

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Market Talk Update 01.17.2023

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Pivotal Week For Price Action
Market TalkFriday, Sep 29 2023

The Energy Bulls Are On The Run This Morning, Lead By Heating And Crude Oil Futures

The energy bulls are on the run this morning, lead by heating and crude oil futures. The November HO contract is trading ~7.5 cents per gallon (2.3%) higher while WTI is bumped $1.24 per barrel (1.3%) so far in pre-market trading. Their gasoline counterpart is rallying in sympathy with .3% gains to start the day.

The October contracts for both RBOB and HO expire today, and while trading action looks to be pretty tame so far, it isn’t a rare occurrence to see some big price swings on expiring contracts as traders look to close their positions. It should be noted that the only physical market pricing still pricing their product off of October futures, while the rest of the nation already switched to the November contract over the last week or so.

We’ve now got two named storms in the Atlantic, Philippe and Rina, but both aren’t expected to develop into major storms. While most models show both storms staying out to sea, the European model for weather forecasting shows there is a possibility that Philippe gets close enough to the Northeast to bring rain to the area, but not much else.

The term “$100 oil” is starting to pop up in headlines more and more mostly because WTI settled above the $90 level back on Tuesday, but partially because it’s a nice round number that’s easy to yell in debates or hear about from your father-in-law on the golf course. While the prospect of sustained high energy prices could be harmful to the economy, its important to note that the current short supply environment is voluntary. The spigot could be turned back on at any point, which could topple oil prices in short order.

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Pivotal Week For Price Action
Market TalkThursday, Sep 28 2023

Gasoline And Crude Oil Futures Are All Trading Between .5% And .8% Lower To Start The Day

The energy complex is sagging this morning with the exception of the distillate benchmark as the prompt month trading higher by about a penny. Gasoline and crude oil futures are all trading between .5% and .8% lower to start the day, pulling back after WTI traded above $95 briefly in the overnight session.

There isn’t much in the way of news this morning with most still citing the expectation for tight global supply, inflation and interest rates, and production cuts by OPEC+.

As reported by the Department of Energy yesterday, refinery runs dropped in all PADDs, except for PADD 3, as we plug along into the fall turnaround season. Crude oil inventories drew down last week, despite lower runs and exports, and increased imports, likely due to the crude oil “adjustment” the EIA uses to reconcile any missing barrels from their calculated estimates.

Diesel remains tight in the US, particularly in PADD 5 (West Coast + Nevada, Arizona) but stockpiles are climbing back towards their 5-year seasonal range. It unsurprising to see a spike in ULSD imports to the region since both Los Angeles and San Francisco spot markets are trading at 50+ cent premiums to the NYMEX. We’ve yet to see such relief on the gasoline side of the barrel, and we likely won’t until the market switches to a higher RVP.

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