It’s An Unusually Quiet Start For Energy Prices Wednesday, Ahead Of A Busy Day Full Of Economic And Inventory Data Later This Morning

Market TalkWednesday, Nov 2 2022
Pivotal Week For Price Action

It’s an unusually quiet start for energy prices Wednesday, ahead of a busy day full of economic and inventory data later this morning, and an FOMC announcement this afternoon.

Unsubstantiated rumors that China may change their COVID-zero policy – which has kept a lid on demand in the world’s largest oil importer this year – was the easy headline to point to for the rally in crude and gasoline prices Tuesday, probably because that’s a much easier explanation than the realities of money flows in the market, particularly on the first trading day of a month. 

Other rumors that Iran may be planning an attack on Saudi Arabia, perhaps to turn attention away from the violent crackdown on protesters, were also given credit for a brief increase in overnight prices, although those moves proved short lived. 

The API reported a drawdown of 6.5 million barrels of oil in the US last week, as the SPR releases wind down and offer less of a supplement to commercial supplies. Gasoline stocks were reported to drop by 2.6 million barrels while distillates increased by 865,000 barrels.  The DOE/EIA’s weekly report is due out at its normal time. 

The majority of the global market is expecting the FOMC to announce another 75 point rate increase today – the 4th consecutive increase of that size - with the CME’s FedWatch tool showing an 86% probability of that increase priced in to FED Fund futures.  The big question is if the FOMC will signal a slowdown in hikes in future meetings, with the market fairly split between a 50 and 75 point hike at December’s meeting. The FED Chair is set to give a news conference at 1:30 central, which can often create more volatility than the announcement itself.

Tropical Storm Lisa is heading towards Belize, and a new long range model gives that storm a chance to redevelop after crossing the Yucatan into the Gulf of Mexico next week, so we’ll need to keep an eye on that storm for a few more days. Tropical Storm Martin has formed in the North Atlantic, but is moving away from the US and does not pose a threat to land. In addition to the two late season tropical storms, the NHC is giving low (20%) odds of another system forming in the Caribbean over the next 5 days. The official Hurricane season ends November 30, leaving just about 4 weeks for the market to hold their breath that we make it through without a disruption to the supply network that’s wound historically tight.

For those that don’t like reading, the WSJ has published a video noting the complexities (aka loopholes) in sanctions that continue to allow Russian oil to end up in the US, and why the new sanctions set to take place in December may force another shift in supply. The refinery highlighted in that video has become a hot topic of conversation over the past week as Italy races to do what it can to keep it operating. Looking forward, as China and India continue to buy more Russian crude, and expand their refining capacity, it’s easy to see how more and more US imports of refined products could be starting out as crude oil in Russia. 

For those that do like reading, take a look at this thorough explanation from RBN energy of what’s thrown diesel markets out of whack this year, and why an export ban would be counterproductive. 

Grain markets are breathing a sigh of relief after Russia agreed to rejoin the truce on shipments in the Black Sea, which may help cool the recent run up in ethanol prices. Then again, the rail strike that was “narrowly averted” in September continues to crop up as 2 unions have refused to ratify that agreement, setting the stage for another showdown later this month that could have widespread impacts on the distribution of ethanol and numerous other commodities.  

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

Market Talk Update 11.02.2022

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Market TalkFriday, May 17 2024

The Recovery Rally In Energy Markets Continues For A 3rd Day

The recovery rally in energy markets continues for a 3rd day with refined product futures both up more than a dime off of the multi-month lows we saw Wednesday morning. The DJIA broke 40,000 for the first time ever Thursday, and while it pulled back yesterday, US equity futures are suggesting the market will open north of that mark this morning, adding to the sends of optimism in the market.

Despite the bounce in the back half of the week, the weekly charts for both RBOB and ULSD are still painting a bearish outlook with a lower high and lower low set this week unless the early rally this morning can pick up steam in the afternoon. It does seem like the cycle of liquidation from hedge funds has ended however, so it would appear to be less likely that we’ll see another test of technical support near term after this bounce.

Ukraine hit another Russian refinery with a drone strike overnight, sparking a fire at Rosneft’s 240mb/day Tuapse facility on the black sea. That plant was one of the first to be struck by Ukrainian drones back in January and had just completed repairs from that strike in April. The attack was just one part of the largest drone attack to date on Russian energy infrastructure overnight, with more than 100 drones targeting power plants, fuel terminals and two different ports on the Black Sea. I guess that means Ukraine continues to politely ignore the White House request to stop blowing up energy infrastructure in Russia.

Elsewhere in the world where lots of things are being blown up: Several reports of a drone attack in Israel’s largest refining complex (just under 200kbd) made the rounds Thursday, although it remains unclear how much of that is propaganda by the attackers and if any impact was made on production.

The LA market had 2 different refinery upsets Thursday. Marathon reported an upset at the Carson section of its Los Angeles refinery in the morning (the Carson facility was combined with the Wilmington refinery in 2019 and now reports as a single unit to the state, but separately to the AQMD) and Chevron noted a “planned” flaring event Thursday afternoon. Diesel basis values in the region jumped 6 cents during the day. Chicago diesel basis also staged a recovery rally after differentials dropped past a 30 cent discount to futures earlier in the week, pushing wholesale values briefly below $2.10/gallon.

So far there haven’t been any reports of refinery disruptions from the severe weather than swept across the Houston area Thursday. Valero did report a weather-related upset at its Mckee refinery in the TX panhandle, although it appears they avoided having to take any units offline due to that event.

The Panama Canal Authority announced it was increasing its daily ship transit level to 31 from 24 as water levels in the region have recovered following more than a year of restrictions. That’s still lower than the 39 ships/day rate at the peak in 2021, but far better than the low of 18 ships per day that choked transit last year.

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

Pivotal Week For Price Action
Market TalkThursday, May 16 2024

Energy Prices Found A Temporary Floor After Hitting New Multi-Month Lows Wednesday

Energy prices found a temporary floor after hitting new multi-month lows Wednesday morning as a rally to record highs in US equity markets and a modestly bullish DOE report both seemed to encourage buyers to step back into the ring.

RBOB and ULSD futures both bounced more than 6 cents off of their morning lows, following a CPI report that eased inflation fears and boosted hopes for the stock market’s obsession of the FED cutting interest rates. Even though the correlation between energy prices and equities and currencies has been weak lately, the spillover effect on the bidding was clear from the timing of the moves Wednesday.

The DOE’s weekly report seemed to add to the optimism seen in equity markets as healthy increases in the government’s demand estimates kept product inventories from building despite increased refinery runs.

PADD 3 diesel stocks dropped after large increases in each of the past 3 weeks pushed inventories from the low end of their seasonal range to average levels. PADD 2 inventories remain well above average which helps explain the slump in mid-continent basis values over the past week. Diesel demand showed a nice recovery on the week and would actually be above the 5 year average if the 5% or so of US consumption that’s transitioned to RD was included in these figures.

Gasoline inventories are following typical seasonal patterns except on the West Coast where a surge in imports helped inventories recover for a 3rd straight week following April’s big basis rally.

Refiners for the most part are also following the seasonal script, ramping up output as we approach the peak driving demand season which unofficially kicks off in 10 days. PADD 2 refiners didn’t seem to be learning any lessons from last year’s basis collapse and rapidly increased run rates last week, which is another contributor to the weakness in midwestern cash markets. One difference this year for PADD 2 refiners is the new Transmountain pipeline system has eroded some of their buying advantage for Canadian crude grades, although those spreads so far haven’t shrunk as much as some had feared.

Meanwhile, wildfires are threatening Canada’s largest oil sands hub Ft. McMurray Alberta, and more than 6,000 people have been forced to evacuate the area. So far no production disruptions have been reported, but you may recall that fires in this region shut in more than 1 million barrels/day of production in 2016, which helped oil prices recover from their slump below $30/barrel.

California’s Air Resources Board announced it was indefinitely delaying its latest California Carbon Allowance (CCA) auction – in the middle of the auction - due to technical difficulties, with no word yet from the agency when bidders’ security payments will be returned, which is pretty much a nice microcosm for the entire Cap & Trade program those credits enable.

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