Look Out Below, Energy Markets Are Seeing Heavy Selling To Start The Week

Market TalkMonday, Jan 8 2024
Pivotal Week For Price Action

Look out below. Energy markets are seeing heavy selling to start the week, pushing prices back near the low end of their recent trading range and threatening a much bigger slide of technical support breaks down. RBOB gasoline futures are leading the move lower, down more than 6 cents in the early going and trading just 8 cents above the 2-year low set in December. The winter storms sweeping the country this week are certainly not helping matters as many drivers are avoiding the roads.  

Saudi Arabia cut its oil price differentials to a 2+ year low, highlighting the ample supplies globally.  Meanwhile, Iran reportedly defaulted on oil shipments to China, demanding higher prices for deals apparently already completed. This could be playing into the Saudi’s hands, as they look to take back market share from the sharply discounted sanctioned barrels coming from Iran, Venezuela and Russia.  

After two weeks of heavy short covering, we saw a huge influx of new managed money bets on lower prices, with short positions in WTI and Brent increasing by more than 60,000 contracts in the latest report. That big influx of new money from large speculators suggests that the big funds are betting that the Red Sea drama is a red herring.  Today those funds look like heroes, if they were brave enough to hang on to those positions through the rallies we saw Wednesday and Friday last week. The money manager action in refined products was muted last week, with minimal changes for both RBOB and ULSD contracts.

Baker Hughes reported an increase of 1 oil rig drilling in the US last week, while natural gas rigs declined by 2. In total, there were 621 rigs active in the US last week, down from 772 a year ago. Oil rigs account for the majority of the decrease, declining by 117 of the 151-rig decline, but on a percentage basis Natural Gas rigs are down more, declining 22% vs 19% for oil. A Financial Times article this morning highlighted efforts by petroleum producers to combat the lack of qualified students joining the industry. Next week the Supreme Court is scheduled to hear arguments in 2 cases that threaten a 40-year-old precedent that could further alter the industry landscape.  Read this RBN blog post for an (excellent) overview of what’s at stake. 

Motiva is expected to shut the largest crude unit at the country’s largest refinery this week, as maintenance originally planned for the spring was moved up due to equipment challenges.  From a margin standpoint, this may turn out to be ideal timing as crack spreads are trading near 2-year lows. 

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Market Talk Update 01.08.2024

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Market TalkFriday, Jul 19 2024

Summertime-Friday-Apathy Trade Influencing Energy Markets

Energy markets are treading water to start the day as the Summertime-Friday-Apathy trade seems to be influencing markets around the world in the early going. RBOB futures are trying for a 3rd straight day of gains to wipe out the losses we saw to start the week, while ULSD futures continue to look like the weak link, trading lower for a 2nd day and down nearly 3 cents for the week.

Bad to worse: Exxon’s Joliet refinery remains offline with reports that repairs may take through the end of the month. On top of that long delay in restoring power to the facility, ENT reported this morning that the facility has leaked hydrogen fluoride acid gas, which is a dangerous and controversial chemical used in alkylation units. Chicago basis values continue to rally because of the extended downtime, with RBOB differentials approaching a 50-cent premium to futures, which sets wholesale prices just below the $3 mark, while ULSD has gone from the weakest in the country a month ago to the strongest today. In a sign of how soft the diesel market is over most of the US, however, the premium commanded in a distressed market is still only 2 cents above prompt futures.

The 135mb Calcasieu Refinery near Lake Charles LA has been taken offline this morning after a nearby power substation went out, and early reports suggest repairs will take about a week. There is no word yet if that power substation issue has any impacts on the nearby Citgo Lake Charles or P66 Westlake refineries.

Two tanker ships collided and caught fire off the coast of Singapore this morning. One ship was a VLCC which is the largest tanker in the world capable of carrying around 2 million barrels. The other was a smaller ship carrying “only” 300,000 barrels (roughly 12 million gallons) of naphtha. The area is known for vessels in the “dark fleet” swapping products offshore to avoid sanctions, so a collision isn’t too surprising as the vessels regularly come alongside one another, and this shouldn’t disrupt other ships from transiting the area.

That’s (not) a surprise: European auditors have determined the bloc’s green hydrogen goals are unattainable despite billions of dollars of investment, and are based on “political will” rather than analysis. Also (not) surprising, the ambitious plans to build a “next-gen” hydrogen-powered refinery near Tulsa have been delayed.

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

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Market TalkThursday, Jul 18 2024

Refined Products Stanch Bleeding Despite Inventory Builds And Demand Slump

Refined products are trading slightly lower to start Thursday after they stopped the bleeding in Wednesday’s session, bouncing more than 2 cents on the day for both RBOB and ULSD, despite healthy inventory builds reported by the DOE along with a large slump in gasoline demand.

Refinery runs are still above average across the board but were pulled in PADD 3 due to the short-term impacts of Beryl. The Gulf Coast region is still outpacing the previous two years and sitting at the top end of its 5-year range as refiners in the region play an interesting game of chicken with margins, betting that someone else’s facility will end up being forced to cut rates before theirs.

Speaking of which, Exxon Joliet was reportedly still offline for a 3rd straight day following weekend thunderstorms that disrupted power to the area. Chicago RBOB basis jumped by another dime during Wednesday’s session as a result of that downtime. Still, that move is fairly pedestrian (so far) in comparison to some of the wild swings we’ve come to expect from the Windy City. IIR via Reuters reports that the facility will be offline for a week.

LA CARBOB differentials are moving in the opposite direction meanwhile as some unlucky seller(s) appear to be stuck long and wrong as gasoline stocks in PADD 5 reach their highest level since February, and held above the 5-year seasonal range for a 4th consecutive week. The 30-cent discount to August RBOB marks the biggest discount to futures since 2022.

The EIA Wednesday also highlighted its forecast for rapid growth in “Other” biofuels production like SAF and Renewable Naptha and Propane, as those producers capable of making SAF instead of RD can add an additional $.75/gallon of federal credits when the Clean Fuels Producer’s Credit takes hold next year. The agency doesn’t break out the products between the various “Other” renewable fuels, but the total projected output of 50 mb/day would amount to roughly 2% of total Jet Fuel production if it was all turned to SAF, which of course it won’t as the other products come along for the ride similar to traditional refining processes.

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

Pivotal Week For Price Action