Long String Of Price Bounces

Market TalkWednesday, Mar 10 2021
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Energy futures survived yet another attempted selloff overnight, with refined products trading up modestly this morning after moving lower by around three cents overnight. The latest in a long string of price bounces continues to encourage the “buy the dip” crowd, and keeps the bullish trend intact for now.

The EIA’s short term energy outlook raised the expectations for U.S. GDP growth in 2021 by 1.7%, as the economy is now expected to recover at a much faster rate than was predicted just a month ago. Despite the increase in growth, the EIA still predicts that global oil supply growth will outpace demand in the back half of the year as idle capacity is brought back online around the globe. The STEO highlighted the role a weaker U.S. dollar has played in oil prices rising over the past several months, failing to explain why priced have continued to go up even as the dollar has surged in recent weeks. 

The analysts also mentioned the rally in refinery margins, but failed to note the relationship that near-record RIN prices may be having on those spreads, and instead blamed it on “expectations of higher gasoline demand and subdued supply, likely contributed.” In other words, they don’t really watch the market much at all. One interesting piece of data aided by the dramatic refining impacts of February’s polar plunge, was that “the United States will be a net importer of 0.2 million b/d of gasoline in March, which would be the first time the United States is a net importer of gasoline in March since 2015.”  

The API reported some huge figures in its weekly inventory report, as the industry group’s estimates catch up to the record-setting DOE data we saw a week ago, and numerous refinery issues continue to linger. Crude supplies were reported to increase by 12.8 million barrels on the week while gasoline stocks declined by 8.5 million barrels and distillates dropped by 3.8 million. The DOE’s weekly report is due out at its normal time this morning and we “should” see a bounce back in refinery runs after they smashed the record for lowest run rate percentage last week, but it’s hard to say by how much given the various false-starts reported as plants started coming back online. A Bloomberg report said that as of Monday, just 7 of the 18 refineries shuttered by the February cold snap are operating normally. 

Diesel basis values are starting to return to normal amidst signs that the worst of the supply squeeze is behind us. Group 3 ULSD basis values in particular began their return trip to earth, dropping 20 cents so far this week from Friday’s high trade, but still commanding a healthy premium to neighboring markets as inventories in the region remain tight. Even as the panic buying appears to have subsided, ULSD supply continues to be tight across many U.S. markets. Short term runouts are still expected across the South and up the East Coast over the next week because Colonial pipeline still doesn’t have enough push stock coming from the Houston area to run the pipeline at full rates. 

Unfortunately Colonial Pipeline is making headlines for other reasons this week as reports about last year’s gasoline leak in North Carolina reveal that the spill was much larger than originally reported, and was in fact one of the largest spills on record. Numerous follow up reports are coming out trying to explain how that could happen, while the risks of an old pipeline being so critical to the country’s fuel supply have been known in the industry for years. One interesting note is that reports suggest the pipeline is using the current slow shipping environment to perform maintenance on parts of the line that would be more challenging – if not impossible – when the line is running at capacity.

Today’s interesting read: Why it pays to know your counterparty in commodity markets

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

TACenergy MarketTalk Update 031021

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Pivotal Week For Price Action
Market TalkThursday, Mar 30 2023

Refined Products Are Moving Lower For A 2nd Day After Coming Under Heavy Selling Pressure In Wednesday’s Session

Refined products are moving lower for a 2nd day after coming under heavy selling pressure in Wednesday’s session. Rapidly increasing refinery runs and sluggish diesel demand both seemed to weigh heavily on product prices, while crude oil is still benefitting from the disruption of exports from Iraq. Prices remain range-bound, so expect more choppy back and forth action in the weeks ahead.

US oil inventories saw a large decline last week, despite another 13-million barrels of oil being found in the weekly adjustment figure, as imports dropped to a 2-year low, and refinery runs cranked up in most regions as many facilities return from spring maintenance.

The refining utilization percentage jumped to its highest level of the year but remains overstated since the new 250,000 barrels/day of output from Exxon’s Beaumont facility still isn’t being counted in the official capacity figures. If you’re shocked that the government report could have such a glaring omission, then you haven’t been paying attention to the Crude Adjustment figure this year, and the artificially inflated petroleum demand estimates that have come with it.

Speaking of which, we’re now just a couple of months away from WTI Midland crude oil being included in the Dated Brent index, and given the uncertainty in the US over what should be classified as oil vs condensate, expect some confusion once those barrels start being included in the international benchmark as well.  

Diesel demand continues to hover near the lowest levels we’ve seen for the first quarter in the past 20+ years, dropping sharply again last week after 2 straight weeks of increases had some markets hoping that the worst was behind us. Now that we’re moving out of the heating season, we’ll soon get more clarity on how on road and industrial demand is holding up on its own in the weekly figures that have been heavily influenced by the winter that wasn’t across large parts of the country.

Speaking of which, the EIA offered another mea culpa of sorts Wednesday by comparing its October Winter Fuels outlook to the current reality, which shows a huge reduction in heating demand vs expectations just 6-months ago.  

It’s not just domestic consumption of diesel that’s under pressure, exports have fallen below their 5-year average as buyers in South America are buying more Russian barrels, and European nations are getting more from new facilities in the Middle East.

Take a look at the spike in PADD 5 gasoline imports last week to get a feel for how the region may soon be forced to adjust to rapidly increasing refining capacity in Asia, while domestic facilities come under pressure

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
Market TalkWednesday, Mar 29 2023

Crude Oil Prices Are Trying To Lead Another Rally In Energy Futures This Morning

Crude oil prices are trying to lead another rally in energy futures this morning, while ULSD prices are resisting the pull higher. Stocks are pointed higher in the early going as no news is seen as good news in the banking crisis.

WTI prices have rallied by $10/barrel in the past 7 trading days, even with a $5 pullback last Thursday and Friday. The recovery puts WTI back in the top half of its March trading range but there’s still another $7 to go before the highs of the month are threatened. 

Yesterday’s API report seems to be aiding the continued strength in crude, with a 6 million barrel inventory decline estimated by the industry group last week. That report also showed a decline of 5.9 million barrels of gasoline which is consistent with the spring pattern of drawdowns as we move through the RVP transition, while distillates saw a build of 550k barrels. The DOE’s weekly report is due out at its normal time this morning. 

Diesel prices seems to be reacting both to the small build in inventories – which is yet another data point of the weak demand so far this year for distillates – and on the back of crumbling natural gas prices that settled at their lowest levels in 2.5 years yesterday and fell below $2/million BTU this morning. 

While diesel futures are soft, rack markets across the Southwestern US remain unusually tight, with spreads vs spot markets approaching $1/gallon in several cases as local refiners go through maintenance and pipeline capacity for resupply remains limited. The tightest supply in the region however remains the Phoenix CBG boutique gasoline grade which is going for $1.20/gallon over spots as several of the few refineries that can make that product are having to perform maintenance at the same time. 

French refinery strikes continue for a 4th week and are estimated to be keeping close to 1 million barrels/day of fuel production offline, which is roughly 90% of French capacity and almost 1% of total global capacity. That disruption is having numerous ripple effects on crude oil markets in the Atlantic basin, while the impact on refined product supplies and prices remains much more contained than it was when this happened just 5 months ago.

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

Pivotal Week For Price Action