It’s Another Big Selloff For Energy Prices To Start Wednesday’s Session With Gasoline Futures Already Dropping More Than 20 Cents In The Brief New Year

Market TalkWednesday, Jan 4 2023
Pivotal Week For Price Action

It’s another big selloff for energy prices to start Wednesday’s session with gasoline futures already dropping more than 20 cents in the brief new year, while distillates are down more than 30. A pair of bearish supply & demand headlines from China, and another round of coast to coast storms sapping demand in what’s already the worst time of year for domestic fuel consumption all seem to be weighing heavily on futures this week.

China raised its export quota for refined products by nearly 50% over year ago levels, which by some estimates could bring an additional 50 million barrels of gasoline and distillates to the global market and go a long way to offsetting the lack of Russian supply to Europe over the next few months.   That quota is a good reminder of how China is one of only a handful of nations with substantial excess refining capacity, and that the world’s largest oil importer continues to see sluggish domestic fuel consumption due to COVID issues. 

Speaking of which, while official estimates are low, mounting evidence suggests that COVID deaths are surging in China, which seems to be contributing to the negative market sentiment as it could have widespread repercussions on both demand and more negative impacts on global supply chains. 

Kuwait’s newly expanded Al Zour refinery is ramping up output and export volumes this week, in what will be a new 600,000 barrel/day operation once startup is completed this year, which is about the same size as the largest US refineries. That expansion, along with those previously mentioned in China are a big reason why the world has more solutions to the global distillate shortage in 2023 than we did in 2022, although the logistical hurdles of getting that product to where it’s needed still remain.

While the fundamental arguments are stacking up in the bearish column so far this week, technically the move is not a big deal so far, with most short term studies still stuck in neutral territory. We’ll need to see the December lows of $2.79 for ULSD and $2.02 for RBOB (which are 20-27 cents below current levels respectively) taken out before we get too excited about this latest sell-off as anything more than a good opportunity for those who have been impatiently waiting to buy the dip.

Several news sources have also blamed a surging US dollar for the drop in energy prices this week, even though the correlation between the USD and WTI has been positive over the past couple of months, which is opposite of the normal “Strong dollar, weak commodity” relationship theory. A similar pattern holds true for the relationship between equity markets and energy prices, which can move in lockstep at times, but in the past few months have been going their own way.  

After more than 4 years, the US Chemical Safety board released its final report on the Superior WI refinery explosion that wiped out that facility. The report places the blame on the former owners Husky Energy, who have an unfortunate record of blowing up refineries recently. The Superior plant is still being rebuilt, while the Toledo facility is working to resume operations, both under the new ownership of Cenovus.

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Market Talk Update 01.04.2023

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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.

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

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