Long String Of Price Bounces
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.
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The Yo-Yo Action In Diesel Continues With Each Day Alternating Between Big Gains And Big Losses So Far This Week
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The Yo-Yo Action In Diesel Continues With Each Day Alternating Between Big Gains And Big Losses So Far This Week
The yo-yo action in diesel continues with each day alternating between big gains and big losses so far this week. Today’s 11-cent rally is being blamed on reports that Russia is cutting exports of refined products effective immediately. It’s been a while since Russian sabre rattling has driven a noticeable price move in energy futures, after being a common occurrence at the start of the war. Just like tweets from our prior President however, these types of announcements seem to have a diminishing shelf-life, particularly given how the industry has adapted to the change in Russian export flows, so don’t be surprised if the early rally loses steam later today.
The announcement also helped gasoline prices rally 5-cents off of their overnight lows, and cling to modest gains just above a penny in the early going. Before the announcement, RBOB futures were poised for a 5th straight day of losses.
IF the export ban lasts, that would be good news for US refiners that have seen their buyers in south American countries – most notably Brazil – reduce their purchases in favor of discounted barrels from Russia this year.
US refinery runs dropped below year-ago levels for the first time in 6 weeks, with PADDS 1, 2 and 3 all seeing large declines at the start of a busy fall maintenance schedule. Oil inventories continued to decline, despite the drop-in run rates and a big increase in the adjustment factor as oil exports surged back north of 5 million barrels/day. Keep in mind that as recently as 2011 the US only produced 5 million barrels of oil every day, and exports were mostly banned until 2016, so to be sending this many barrels overseas is truly a game changer for the global market.
Chicken or the egg? Cushing OK oil stocks dropped below year-ago levels for the first time since January last week, which may be caused by the return of backwardation incenting shippers to lower inventory levels, the shift to new WTI Midland and Houston contracts as the export market expands. Of course, the low inventory levels are also blamed for causing the backwardation in crude oil prices, and the shift to an export market may keep inventories at the NYMEX hub lower for longer as fewer shippers want to go inland with their barrels.
Refined product inventories remain near the bottom end of their seasonal ranges, with a healthy recovery in demand after last week’s holiday hangover helping keep stocks in check. The biggest mover was a large jump in PADD 5 distillates, which was foreshadowed by the 30 cent drop in basis values the day prior. The big story for gasoline on the week was a surge in exports to the highest level of the year, which is helping keep inventories relatively tight despite the driving season having ended 2 weeks ago.
As expected, the FED held rates yesterday, but the open market committee also included a note that they expected to raise rates one more time this year, which sparked a selloff in equity markets that trickled over into energy prices Wednesday afternoon. The correlation between energy and equities has been non-existent of late, and already this morning we’re seeing products up despite equities pointing lower, so it doesn’t look like the FOMC announcement will have a lasting impact on fuel prices this time around.
Week 38- US DOE Inventory Recap
It’s A Soft Start For Energy Markets Wednesday As Traders Await The Weekly Inventory Report, And The FOMC
It’s a soft start for energy markets Wednesday as traders await the weekly inventory report, and the FOMC.
Whiplash is the theme of the week for diesel prices that are trading down 7-cents this morning, after a 10-cent rally Tuesday, that followed a 10-cent decline Monday. The weekly trend-line that helped propel values up more than $1/gallon since July 4th is still barely intact, and may prove pivotal in the weeks ahead, with a slide back below $3 looking likely if it breaks down, while a run towards $4 by year end can’t be ruled out if it holds.
Gasoline prices are trading lower for a 4th straight session and have given up 15 cents/gallon over that stretch. While gasoline futures are looking weak, shippers are paying up to move gasoline north on Colonial again, with line space premiums for Line 1 trading above 4- cents/gallon Wednesday. The transition to winter grades that increases output at Gulf Coast facilities, and the maintenance at two refineries on the East Coast both seem to be contributing to the surge in values.
Another bubble burst? Basis values for gasoline and diesel in LA spot markets dropped 30 cents Tuesday as sellers emerged on both sides of the barrel for the first time in nearly a month.
The API reported another large draw in crude oil inventories last week, with total US inventories declining more than 5 million barrels on the week, while Cushing OK stocks dropped more than 2 million barrels. It was a mixed bag for refined products with gasoline seeing a small increase of around 730,000 barrels, while diesel stocks dropped by 250,000. The EIA’s weekly report is due out at its normal time this morning.
Reuters reported Wednesday that the surge in WTI prices has closed the arbitrage window to Europe, while Bloomberg is reporting that a French shipper has been driving the bidding for physical prices along the Gulf Coast that’s compounded the jump in futures prices.
RIN values continue their slide this week, trading in the $1.15 range for D4 and D6 values, which marks an 18-month low for ethanol (D6) RINs, and a 30-month low for the Bio/RD (D4) values. The drop in RINs spells more bad news for many RD producers that are also struggling with a sharp drop in California LCFS values, and shipping delays in the Panama Canal. Ethanol prices have also dropped sharply this week as concerns over a supply disruption following last week’s explosion at the country’s largest ethanol plant are subsiding.
We dodged a couple of major storms in the past week with Lee’s late shifts to the east minimizing the damage along the East Coast, and Nigel’s eastward path making it a non-issue. The NHC is tracking 2 other potential systems this week, one looks to be a rain maker over the Southeast US that’s unlikely to develop, while the other is given 70% odds of being named as it moves across the Atlantic and is in the zone that could make it a threat to either the Gulf or East Coasts to start October.
Pretty much nobody expects to see the FED raise rates again today, with the CME’s Fedwatch tool showing 99% odds that rates hold at current levels, while the market is fairly split on whether or not we’ll see another increase at either of the two remaining FOMC meetings this year.
Motiva’s Pt Arthur TX refinery, the largest in the US, reported an upset at an FCC unit Tuesday. Gulf coast spot markets didn’t seem to flinch on the news, suggesting the impact on operations is minimal.
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