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, May 29 2024

The Texas Power Grid Is Once Again In The Forefront After Another Round Of Storms Left Hundreds Of Thousands Without Power Tuesday

It’s a quiet start to Wednesday’s trading, with refined products up less than a penny in the early going, following a healthy bounce Tuesday that alleviated concerns of a technical price breakdown near term.

A container ship transiting the Red Sea was heavily damaged by a Houthi Missile attack Tuesday. While energy markets continue to shrug off the shipping disruptions caused by those attacks, container ports around the world are feeling its effects and emissions from shipping are increasing along with the longer routes taken to avoid the conflict.

Consolidation continues: Less than a day after Hess shareholders approved its sale to Chevron, Conoco Phillips is reportedly in advanced negotiations to buy Marathon Oil for $22 billion. To avoid confusion, this does not have anything to do with the refining operations at Phillips 66 or Marathon Petroleum, both of which were spun off from their upstream exploration and production companies more than a decade ago. Meanwhile, acquisition activity in the Permian basin remains hotter than drilling activity as Energy Transfer agreed to buy WTG for more than $3 billion.

The Texas power grid is once again in the forefront after another round of storms left hundreds of thousands without power Tuesday. A Reuters article this morning highlights the record setting growth of renewable energy in Texas along with the record use of fossil-based sources to meet the state’s rapid demand increases. This phenomenon isn’t unique to the Lonestar state, with many in the industry believing that electricity demand from AI, Crypto and EV’s will drive the next energy supply squeeze in coming years.

Slowdown coming? The Dallas Fed’s Texas Manufacturing survey showed negative readings on output, new orders and the business conditions outlook in May.

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Pivotal Week For Price Action
Market TalkTuesday, May 28 2024

ULSD Is Leading The Move Higher This Morning With Prices Up Nearly A Nickel In The Early Going

Energy futures are attempting another recovery rally, with products up more than 7 cents from Friday’s early lows, while crude oil contracts have taken back $3/barrel over that time. ULSD is leading the move higher this morning with prices up nearly a nickel in the early going, while RBOB futures are up around 2.5 cents.

Money managers were adding net length in WTI, ULSD and Gasoil contracts last week with both new long positions and heavy short covering. Brent crude was a different story however with speculative net length in the European crude contract slashed by nearly 1/3 with nearly 33,000 new short positions added during the prior week. The big reduction in WTI shorts while Brent shorts are being added suggests the big play by hedge funds may be the WTI/Brent spread rather than bets on outright price movements.

Baker Hughes reported no change in the total oil rig count drilling in the US last week, holding steady at 497 vs 570 a year ago. Natural Gas rigs dropped by 4 on the week, reaching a 2 year low at 99 rigs, down from 137 this time last year. Natural gas prices have staged a big recovery from around $1.50/MMCF a month ago to $2.50 today, but current values are still not high enough to encourage drillers to get more active, particularly with more gas being produced from oil wells.

Deadly storms hit large parts of the country over the Holiday weekend, and continue this morning, but so far no reports of refinery damage from those systems has been reported. Marathon did report an upset in a Residual Hydrotreating unit at its Galveston Bay refinery Friday, but that event doesn’t appear to have slowed down the rest of the facility.

More bad news for US Bio producers: The EIA this morning highlighted the growth in biodiesel imports into the US from Europe – primarily Germany – as changing appetites for renewables and disjointed policies incent more barrels to travel long distances on diesel burning ships to find the highest tax credit value.

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Market TalkFriday, May 24 2024

Selling Continues In Energy Markets After Thursday's Reversal Rally Ran Out Of Steam In The Afternoon

The selling continues in energy markets after Thursday’s reversal rally ran out of steam in the afternoon, following the lead of U.S. equity markets which had a big sell-off on the day. Prices haven’t yet fallen below the multi-month lows we saw early last week, but we’re just a couple of cents away from those levels, and the potential technical trapdoor that could lead to sharply lower values over the next couple of weeks.

We did see a brief spike in gasoline futures after the settlement Thursday following reports that Colonial had shut down Line 4 due to an IT issue, but those gains were short-lived as the pipeline was restarted without issue a few hours later. Those who remember the chaos of May 2021 after Colonial was hacked are breathing a sigh of relief, particularly on one of the busiest demand days of the year, while others are no doubt disappointed we won’t get to see the rash of fake photos of people filling up plastic bags with gasoline.

OPEC & Friends (AKA the DoC) announced they’re moving June’s policy meeting to a virtual-only affair, which the market is taking as a signal of the status quo being held on output cuts.

Chicago being Chicago: Tuesday’s 60-cent basis spike was officially wiped out by Thursday afternoon, suggesting the short-lived rally was just short covering in an illiquid market rather than a meaningful supply disruption.

RIN values continued their rally this week, touching a 4-month high at 59 cents/RIN for both D4 and D6 values Thursday. If you believe in technical analysis on something like RINs, you can see a “W” pattern formed on the charts, suggesting a run to the 80-cent range is coming if prices can get above 60. If you are more of a fundamentalist, then you’ll probably think this rally is probably more short-term short-covering by producers of RD who have changed their schedule buying back their RIN hedges for volume they’re no longer planning to produce.

NOAA issued its most aggressive Hurricane forecast ever Thursday, joining numerous other groups that think a La Nina pattern and record warm waters will create more and bigger storms this year. With the activity level seeming to be a foregone conclusion at this point, now it’s all about where those storms hit to know if this busy season will be a huge factor in energy supplies like we saw in 2005, 2008, 2012 and 2017. With the Houston area already being bombarded by floods and deadly wind this year, the refinery row across the U.S. Gulf Coast seems even more vulnerable than normal to the effects of a storm.

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