Lack Of Enthusiasm From Gasoline And Crude Oil Prices
If at first you don’t succeed…Diesel prices are trying to lead the energy complex higher this morning, after rally attempts stalled out Monday and Tuesday. This time could be different, however, as ULSD futures have broken the top side of their month old sideways trading range in the early going, which could spark some buying from trading programs and bandwagon jumpers. If diesel futures can hold above the $1.84 mark today, there’s a good chance we will see them push into the mid $1.90s in the next week, but if they fail, it seems like we’ll be stuck back in the sideways range for a while longer.
A lack of enthusiasm from gasoline and crude oil prices seems to be a limiting factor in the diesel rally so far. RBOB futures have managed to move higher in the past five sessions, and yet the combined gains during that stretch are less than three cents, suggesting a lack of conviction from buyers after prices doubled from November to March.
The IEA’s monthly oil market report followed the lead of the EIA and OPEC monthly reports, increasing global fuel demand estimates as vaccine & stimulus package rollouts are getting people moving again. The IEA’s report did highlight concerns that rising case counts in Europe, Brazil and India could slow the demand recovery, and noted that excess supply capacity from OPEC and the U.S. should help keep prices from getting too high. The IEA also highlighted that Iran’s oil production has reached a two year high as the country is finding ways to get around U.S. sanctions, which could bring more downward pressure to prices if that trend continues.
The EIA this morning highlighted several new oil projects in the Gulf of Mexico that could bring 200mb/day of production online by the end of next year, which is a completely different outlook than a year ago when many projects were shutting down. The report also highlights the threat hurricanes create to GOM production, as early forecasts call for another above-average season for storm activity, after we just lived through the most active season on record.
Chicago-area refineries are making news this week. The DOJ announced a settlement deal with ExxonMobil and the state of Illinois that requires Exxon to pay $1.5 million in fines, and spend $10 million in upgrades to its Joliet facility. The headline writers are touting this as the new administration’s tough stance on the energy industry, but in reality this settlement stems from an agreement made 12 years ago. Meanwhile, BP is reportedly selling off a major stake in its U.S. pipeline assets, as it continues to shed assets to pay down debt, cover severance payments from their annual reorganizations and continue paying their $1.2 annual settlement the 2010 Gulf of Mexico oil spill.
Meanwhile, two midcontinent refining companies still aren’t getting along taking with the war of words and shareholder votes between Carl Icahn backed CVR and Delek being taken to the court of public opinion, proving that there’s apparently more money to be made through financial engineering of refining-related companies than there is in engineering those refineries to make more product.
Click here to download a PDF of today's TACenergy Market Talk.
Latest Posts
Energy Markets Rally Again Thursday After A Choppy Wednesday Session
Week 16 - US DOE Inventory Recap
Energy Markets Trading Quietly In The Red As Ethanol Prices Rally To Five-Month High
The Struggle For Renewable Producers Continues As A Rapid Influx Of Supply And Crashing Credit Prices Make Biodiesel
Social Media
News & Views
View All
Energy Markets Rally Again Thursday After A Choppy Wednesday Session
Energy markets are trying to rally again Thursday after a choppy Wednesday session. RBOB gasoline futures are leading the push higher, on pace for a 3rd consecutive day of gains after finding a temporary floor Tuesday and have added 12 cents from those lows.
Equity markets are pointing sharply lower after a weak Q1 GDP estimate which seems to have contributed to a pullback in product prices over the past few minutes, but don’t be surprised if the “bad news is good news” low interest rate junkies start jumping in later on.
The DOE’s weekly report showed sluggish demand for gasoline and diesel, but inventory levels in most markets continue to follow their typical seasonal trends. Refinery runs held fairly steady last week with crude inputs down slightly but total gross throughputs up slightly as most facilities are now back online from a busy spring maintenance season and geared up for peak demand this summer.
Propane and propylene exports spiked to a record high north of 2.3 million barrels/day last week, which demonstrates both the US’s growing influence on global product markets, and the steady shift towards “other” products besides traditional gasoline and diesel in the level of importance for refiners.
The EIA acknowledged this morning that its weak diesel consumption estimates reflected the switch to Renewable Diesel on the West Coast, although they did not provide any timeline for when that data will be included in the weekly survey. The agency acknowledged that more than 4% of the total US consumption is now a combination of RD and Biodiesel, and that number is expected to continue to grow this year. This morning’s note also suggested that weak manufacturing activity was to blame for the sluggish diesel demand across the US, while other reports suggest the freight recession continued through Q1 of this year, which is also contributing to the big shift from tight diesel markets to oversupplied in several regions.
Valero kicked off the Q1 earnings releases for refiners with solid net income of $1.2 billion that’s a far cry from the spectacular earnings north of $3 billion in the first quarter of 2023. The refining sector made $1.7 billion, down from $4.1 billion last year. That is a pattern that should be expected from other refiners as well as the industry returns to a more normal market after 2 unbelievable years. You wouldn’t guess it by looking at stock prices for refiners though, as they continue to trade near record highs despite the more modest earnings.
Another pattern we’re likely to see continue with other refiners is that Renewable earnings were down, despite a big increase in production as lower subsidies like RINs and LCFS credit values sting producers that rely on those to compete with traditional products. Valero’s SAF conversion project at its Diamond Green joint venture is progressing ahead of schedule and will give the company optionality to flip between RD and SAF depending on how the economics of those two products shakes out this year. Valero also shows part of why refiners continue to disappear in California, with operating expenses for its West Coast segment nearly 2X that of the other regions it operates in.
Week 16 - US DOE Inventory Recap
Energy Markets Trading Quietly In The Red As Ethanol Prices Rally To Five-Month High
Energy markets are trading quietly in the red to start Wednesday’s session after a healthy bounce Tuesday afternoon suggested the Israel-Iran-linked liquidation had finally run its course.
There are reports of more Ukrainian strikes on Russian energy assets overnight, but the sources are sketchy so far, and the market doesn’t seem to be reacting as if this is legitimate news.
Ethanol prices have rallied to a 5-month high this week as corn and other grain prices have rallied after the latest crop progress update highlighted risks to farmers this year, lower grain export expectations from Ukraine, and the approval of E15 blends this summer despite the fact it pollutes more. The rally in grain and renewables prices has also helped RIN values find a bid after it looked like they were about to test their 4-year lows last week.
The API reported small changes in refined product inventories last week, with gasoline stocks down about 600,000, while distillates were up 724,000. Crude oil inventories increased by 3.2 million barrels according to the industry-group estimates. The DOE’s weekly report is due out at its normal time this morning.
Total reported another upset at its Port Arthur refinery that’s been a frequent flier on the TCEQ alerts since the January deep freeze knocked it offline and damaged multiple operating units. This latest upset seems minor as the un-named unit impacted was returned to normal operations in under an hour. Gulf Coast basis markets have shrugged off most reports of refinery upsets this year as the region remains well supplied, and it’s unlikely we’ll see any impact from this news.
California conversely reacted in a big way to reports of an upset at Chevron’s El Segundo refinery outside of LA, with CARBOB basis values jumping by more than a dime. Energy News Today continued to show its value by reporting the upset before the flaring notice was even reported to area regulators, proving once again it’s ahead of the curve on refinery-related events. Another industry news outlet meanwhile struggled just to remember where the country’s largest diesel seller is located.
Click here to download a PDF of today's TACenergy Market Talk