It’s A Strong Start For Energy Markets Monday

Market TalkMonday, Jan 9 2023
Pivotal Week For Price Action

It’s a strong start for energy markets Monday, after the biggest weekly drop to start a new year in several decades for most contracts. The back and forth action keeps the complex in technical no-man’s land, with plenty of conflicting fundamental stories to keep the choppy back and forth action moving near term.

China increased its oil import quotas by 20%, coinciding with its borders reopening, in a sure sign that the world’s largest oil buyer is attempting to get moving once again. A big question that will need months to answer is how much of that oil will end up as products consumed domestically, and how much will be sent overseas as the country has also made big increases to its refined product export quotas this year, allowing more of its excess processing capacity to reach the world market.

Part of the weakness in the petroleum arena to start the year has been blamed on a big drop in natural gas prices which hit an 18 month low last week. Warm weather across much of the US and Europe has helped avoid what many feared would be a brutal winter for heating fuel supplies, and may be upending Russia’s strategy to bring western nations to the negotiating table.

Colonial’s line 3 returned to service Sunday evening, a little more than a day later than expected heading into the weekend, but still soon enough to keep from stirring up the regional markets too much.

Baker Hughes reported a decline of 3 oil rigs and 4 natural gas rigs drilling in the US last week, marking the 4th time in 5 weeks we’ve seen the count drop. That pattern suggests current prices aren’t enough to encourage a rush of drilling activity, even though producers remain profitable at these levels. The lack of new investment is keeping the rig counts well below pre-pandemic levels, and perhaps upending the government forecasts that suggest US oil output will reach all-time highs this year.

Money managers continue to be split on where energy prices are going, with RBOB, Brent and Gasoil contracts seeing small increases in net length last week, while ULSD and WTI saw small decreases. The biggest change of the week were 19,000 new short WTI positions added, which suggests someone may be making some large bets on falling prices, until you notice that there were 16,000 new long Brent contracts added, and now it just appears to be a spread position guessing that European prices will outpace the US now that Keystone is back up and running. Open interest on all contracts remains near 7 year lows as the increased volatility, margin costs and interest rates to pay that margin continue to keep some traders on the sidelines.

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Market Talk Update 01.09.2023

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Pivotal Week For Price Action
Market TalkWednesday, Jun 7 2023

Energy Prices Fluctuate: Chinese Imports Surge, Saudi Arabia Cuts Output and Buys Golf

Energy prices continue their back-and-forth trading, starting Wednesday’s session with modest gains, after a round of selling Tuesday wiped out the Saudi output cut bounce. 

A surge in China’s imports of crude oil and natural gas seem to be the catalyst for the early move higher, even though weak export activity from the world’s largest fuel buyer suggests the global economy is still struggling. 

New tactic?  Saudi Arabia’s plan to voluntarily cut oil production by another 1 million barrels/day failed to sustain a rally in oil prices to start the week, so they bought the PGA tour

The EIA’s monthly Short Term Energy Outlook raised its price forecast for oil, citing the Saudi cuts, and OPEC’s commitment to extend current production restrictions through 2024. The increase in prices comes despite reducing the forecast for US fuel consumption, as GDP growth projections continue to decline from previous estimates. 

The report included a special article on diesel consumption, and its changing relationship with economic activity that does a good job of explaining why diesel prices are $2/gallon cheaper today than they were a year ago.   

The API reported healthy builds in refined product inventories last week, with distillates up 4.5 million barrels while gasoline stocks were up 2.4 million barrels in the wake of Memorial Day. Crude inventories declined by 1.7 million barrels on the week. The DOE’s weekly report is due out at its normal time this morning. 

We’re still waiting on the EPA’s final ruling on the Renewable Fuel Standard for the next few years, which is due a week from today, but another Reuters article suggests that eRINs will not be included in this round of making up the rules.

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Pivotal Week For Price Action
Pivotal Week For Price Action
Market TalkTuesday, Jun 6 2023

Energy Prices Retreat, Global Demand Concerns Loom

So much for that rally. Energy prices have given back all of the gains made following Saudi Arabia’s announcement that it would voluntarily withhold another 1 million barrels/day of oil production starting in July. The pullback appears to be rooted in the ongoing concerns over global demand after a soft PMI report for May while markets start to focus on what the FED will do at its FOMC meeting next week.

The lack of follow through to the upside leaves petroleum futures stuck in neutral technical territory, and since the top end of the recent trading range didn’t break, it seems likely we could see another test of the lower end of the range in the near future.  

RIN prices have dropped sharply in the past few sessions, with traders apparently not waiting on the EPA’s final RFS ruling – due in a week – to liquidate positions. D6 values dropped to their lowest levels in a year Monday, while D4 values hit a 15-month low. In unrelated news, the DOE’s attempt to turn seaweed into biofuels has run into a whale problem.  

Valero reported a process leak at its Three Rivers TX refinery that lasted a fully 24 hours.  That’s the latest in a string of upsets for south Texas refineries over the past month that have kept supplies from San Antonio, Austin and DFW tighter than normal. Citgo Corpus Christi also reported an upset over the weekend at a sulfur recovery unit. Several Corpus facilities have been reporting issues since widespread power outages knocked all of the local plants offline last month.  

Meanwhile, the Marathon Galveston Bay (FKA Texas City) refinery had another issue over the weekend as an oil movement line was found to be leaking underground but does not appear to have impacted refining operations at the facility. Gulf Coast traders don’t seem concerned by any of the latest refinery issues, with basis values holding steady to start the week.

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