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, Apr 19 2024

Gasoline Futures Are Leading The Way Lower This Morning

It was a volatile night for markets around the world as Israel reportedly launched a direct strike against Iran. Many global markets, from equities to currencies to commodities saw big swings as traders initially braced for the worst, then reversed course rapidly once Iran indicated that it was not planning to retaliate. Refined products spiked following the initial reports, with ULSD futures up 11 cents and RBOB up 7 at their highest, only to reverse to losses this morning. Equities saw similar moves in reverse overnight as a flight to safety trade soon gave way to a sigh of relief recovery.

Gasoline futures are leading the way lower this morning, adding to the argument that we may have seen the spring peak in prices a week ago, unless some actual disruption pops up in the coming weeks. The longer term up-trend is still intact and sets a near-term target to the downside roughly 9 cents below current values. ULSD meanwhile is just a nickel away from setting new lows for the year, which would open up a technical trap door for prices to slide another 30 cents as we move towards summer.

A Reuters report this morning suggests that the EPA is ready to announce another temporary waiver of smog-prevention rules that will allow E15 sales this summer as political winds continue to prove stronger than any legitimate environmental agenda. RIN prices had stabilized around 45 cents/RIN for D4 and D6 credits this week and are already trading a penny lower following this report.

Delek’s Big Spring refinery reported maintenance on an FCC unit that would require 3 days of work. That facility, along with several others across TX, have had numerous issues ever since the deep freeze events in 2021 and 2024 did widespread damage. Meanwhile, overnight storms across the Midwest caused at least one terminal to be knocked offline in the St. Louis area, but so far no refinery upsets have been reported.

Meanwhile, in Russia: Refiners are apparently installing anti-drone nets to protect their facilities since apparently their sling shots stopped working.

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Pivotal Week For Price Action
Market TalkThursday, Apr 18 2024

The Sell-Off Continues In Energy Markets, RBOB Gasoline Futures Are Now Down Nearly 13 Cents In The Past Two Days

The sell-off continues in energy markets. RBOB gasoline futures are now down nearly 13 cents in the past two days, and have fallen 16 cents from a week ago, leading to questions about whether or not we’ve seen the seasonal peak in gasoline prices. ULSD futures are also coming under heavy selling pressure, dropping 15 cents so far this week and are trading at their lowest level since January 3rd.

The drop on the weekly chart certainly takes away the upside momentum for gasoline that still favored a run at the $3 mark just a few days ago, but the longer term up-trend that helped propel a 90-cent increase since mid-December is still intact as long as prices stay above the $2.60 mark for the next week. If diesel prices break below $2.50 there’s a strong possibility that we see another 30 cent price drop in the next couple of weeks.

An unwind of long positions after Iran’s attack on Israel was swatted out of the sky without further escalation (so far anyway) and reports that Russia is resuming refinery runs, both seeming to be contributing factors to the sharp pullback in prices.

Along with the uncertainty about where the next attacks may or may not occur, and if they will have any meaningful impact on supply, come no shortage of rumors about potential SPR releases or how OPEC might respond to the crisis. The only thing that’s certain at this point, is that there’s much more spare capacity for both oil production and refining now than there was 2 years ago, which seems to be helping keep a lid on prices despite so much tension.

In addition, for those that remember the chaos in oil markets 50 years ago sparked by similar events in and around Israel, read this note from the NY Times on why things are different this time around.

The DOE’s weekly status report was largely ignored in the midst of the big sell-off Wednesday, with few noteworthy items in the report.

Diesel demand did see a strong recovery from last week’s throwaway figure that proves the vulnerability of the weekly estimates, particularly the week after a holiday, but that did nothing to slow the sell-off in ULSD futures.

Perhaps the biggest next of the week was that the agency made its seasonal changes to nameplate refining capacity as facilities emerged from their spring maintenance.

PADD 2 saw an increase of 36mb/day, and PADD 3 increased by 72mb/day, both of which set new records for regional capacity. PADD 5 meanwhile continued its slow-motion decline, losing another 30mb/day of capacity as California’s war of attrition against the industry continues. It’s worth noting that given the glacial pace of EIA reporting on the topic, we’re unlikely to see the impact of Rodeo’s conversion in the official numbers until next year.

Speaking of which, if you believe the PADD 5 diesel chart below that suggests the region is running out of the fuel, when in fact there’s an excess in most local markets, you haven’t been paying attention. Gasoline inventories on the West Coast however do appear consistent with reality as less refining output and a lack of resupply options both continue to create headaches for suppliers.

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