It’s Been A Choppy Trading Session For Energy Futures With Overnight Gains Turning Into Morning Losses

Market TalkTuesday, May 17 2022
Pivotal Week For Price Action

It’s been a choppy trading session for energy futures with overnight gains turning into morning losses, and signs of a potential market top flashing even as new records are being set.   RBOB gasoline futures and several US spot markets set fresh records on Monday, meaning new record highs for retail prices are coming. While that’s bad news for consumers, and will no doubt continue to dominate headlines near term, there’s a divergence with diesel prices that could be bringing relief. 

Monday was a relatively quiet session for NYH ULSD futures, which traded down less than 1.5 cents, but a big day for NYH diesel spot markets that dropped more than 56 cents on the day.  A big drop in NYH was inevitable as those values were trading $1/gallon or more than any other US region, and typically once a bubble like that bursts it’s a one way trip lower so don’t be surprised to see more downside now that sellers have emerged.  

Just as the backwardation in ULSD, and the spread to NYH, have started their return trip to reality, gasoline spreads have decided to smash records. The Prompt month futures spread for RBOB reached its highest level since the wake of Hurricane Harvey yesterday, and is actually more impressive given that this backwardation doesn’t include the winter RVP discount like that one did. Even more impressive, June RBOB futures are trading $1.15 above January, which is roughly 60 cents higher than the record prior to this year.

The premium for barrels in NYH has sent values for shipping product along Colonial to their highest levels of the year, although as we saw with diesel prices the past couple of months, the backwardation in the market makes this a challenge. The difference between gasoline and diesel however is that the export bid for gasoline is not nearly as strong, so sending barrels north on Colonial seems to make the most sense for those with space. 

With supply options in the slim to none category globally the major question is how soon will the record high prices start hitting fuel demand? Rising fuel prices are already being cited as a headwind in Wall Street earnings reports, and we’ll have to wait and see if main street reacts with staycations this summer, or if they’ll pay up to get out after 2 years of travel disruptions.

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

Market Talk Update 05.17.22

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Pivotal Week For Price Action
Market TalkThursday, Feb 29 2024

It's Another Mixed Start For Energy Futures This Morning After Refined Products Saw Some Heavy Selling Wednesday

It's another mixed start for energy futures this morning after refined products saw some heavy selling Wednesday. Both gasoline and diesel prices dropped 7.5-8.5 cents yesterday despite a rather mundane inventory report. The larger-than-expected build in crude oil inventories (+4.2 million barrels) was the only headline value of note, netting WTI futures a paltry 6-cent per barrel gain on the day.

The energy markets seem to be holding their breath for this morning’s release of the Personal Consumption Expenditures (PCE) data from the Bureau of Economic Analysis (BEA). The price index is the Fed’s preferred inflation monitor and has the potential to impact how the central bank moves forward with interest rates.

Nationwide refinery runs are still below their 5-year average with utilization across all PADDs well below 90%. While PADD 3 production crossed its 5-year average, it’s important to note that measure includes the “Snovid” shutdown of 2021 and throughput is still below the previous two years with utilization at 81%.

We will have to wait until next week to see if the FCC and SRU shutdowns at Flint Hills’ Corpus Christi refinery will have a material impact on the regions refining totals. Detail on the filing can be found on the Texas Commission on Environmental Quality website.

Update: the PCE data shows a decrease in US inflation to 2.4%, increasing the likelihood of a rate cut later this year. Energy futures continue drifting, unfazed.

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
Pivotal Week For Price Action
Market TalkWednesday, Feb 28 2024

It’s Red Across The Board For Energy Prices So Far This Morning With The ‘Big Three’ Contracts All Trading Lower To Start The Day

It’s red across the board for energy prices so far this morning with the ‘big three’ contracts (RBOB, HO, WTI) all trading lower to start the day. Headlines are pointing to the rise in crude oil inventories as the reason for this morning’s pullback, but refined product futures are leading the way lower, each trading down 1% so far, while the crude oil benchmark is only down around .3%.

The American Petroleum Institute published their national inventory figures yesterday afternoon, estimating an 8+ million-barrel build in crude oil inventory across the country. Gasoline and diesel stocks are estimated to have dropped by 3.2 and .5 million barrels last week, respectively. The official report from the Department of Energy is due out at its regular time this morning (9:30 CST).

OPEC’n’friends are rumored to be considering extending their voluntary production cuts into Q2 of this year in an effort to buoy market prices. These output reductions, reaching back to late 2022, are aimed at paring back global supply by about 2.2 million barrels per day and maintaining a price floor. On the flip side, knowledge of the suspended-yet-available production capacity and record US output is keeping a lid on prices.

How long can they keep it up? While the cartel’s de facto leader (Saudi Arabia) may be financially robust enough to sustain itself through reduced output indefinitely, that isn’t the case for other member countries. Late last year Angola announced it will be leaving OPEC, freeing itself to produce and market its oil as it wishes. This marks the fourth membership suspension over the past decade (Indonesia 2016, Qatar 2019, Ecuador 2020).

The spot price for Henry Hub natural gas hit a record low, exchanging hands for an average of $1.50 per MMBtu yesterday. A rise in production over the course of 2023 and above average temperatures this winter have pressured the benchmark to a price not seen in its 27-year history, much to Russia’s chagrin.

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