Markets Around The World Are Transitioning From Full Panic To Major Discomfort As The Russian War On Ukraine Continues

Market TalkFriday, Feb 25 2022
Pivotal Week For Price Action

Markets around the world are transitioning from full panic to major discomfort as the Russian war on Ukraine continues, but the fallout has been isolated so far. This time yesterday brought with it breathless comparisons to other notorious market shocks, as Europe was not only facing its most severe military conflict since WW2, but it came with an only-slightly-veiled threat of nuclear war should other countries try to intervene. 

Equity markets staged a huge recovery Thursday afternoon, and energy prices pulled back sharply, as traders digested the new reality that most have only read about in history books online, with several factors seeming to play into the calming down we witnessed throughout the day.The US President had promised sanctions would be “swift and severe” if Russia invaded Ukraine.  Thursday he announced a variety of moves that may be seen as severe, but avoided cutting Russia off from the SWIFT payment system, which is seen as a way to keep a penalty in reserve if needed, allow European banks to continue receiving loan payments from Russian firms, and probably most importantly, allow for Russian energy exports to continue

Expectations that the FED would take it easier on interest rate hikes to try and offset some of the economic impact of the war & sanctions also seemed to encourage stock markets. The CME’s FedWatch tool shows that 2 days ago, there was a 33% probability of a 50 point rate hike at the March FOMC meeting, but that likelihood dropped to 21% yesterday.

While the panic has subsided, we’re a long way away from a calm market. After refined product prices pulled back 15-18 cents from the overnight highs Thursday afternoon, energy buyers did step back in pushing prices 5-6 cents higher last night, only to see a drop to 2-3 cent losses earlier this morning. That type of volatility is to be expected as long as the fighting and constantly changing stance on sanctions continues.  

Physical product trading in the US had a fairly muted reaction, with most regional cash markets seeing only small basis moves on low liquidity, which is common when the futures market goes wild. RIN values did move higher on the day as the risk of trickle down effects from Black Sea supply disruptions to grain markets took hold, but like the rest of the energy contracts those prices pulled back sharply from the initial round of panic buying.  

The lack of reaction in USGC products was particularly noteworthy given the ongoing shutdown of the products pipeline FKA Plantation as the company investigates a leak in Georgia. Values for shipping space on Colonial had already jumped last week as the annual RVP transition opened up the Gulf-East Coast arbitrage window, and those values held steady Thursday, suggesting the big physical traders aren’t yet too concerned that the pipeline will be down for long. There are already reports that some retail stations in the US are seeing long lines as consumers fill their various forms of fuel tanks due to the Russian invasion, and if the Plantation line stays down for another couple of days, that phenomenon could get much worse. 

Some notes from the DOE report Thursday (that no one seemed to pay attention to for more than a minute or two):

US diesel inventories declined for a 6th consecutive week, and are holding 30 million barrels (nearly 1.3 billion gallons) below their average for this time of year.  Demand both domestically and abroad remains strong, which helps explain why the coasts (PADDs 1, 3 and 5) are all tight, while the landlocked locations (PADDs 2 & 4) are relatively well supplied.   There’s a similar but less severe phenomenon with US Gasoline inventories which are slightly below average in total, with coastal markets seeing tighter supplies than normal. Another theme is that while supplies are well below year-ago levels this week, that’s about to change for many markets as refiners continue to operate relatively well through a parade of winter storms, and while there have been a handful of upsets, there is nothing even remotely resembling the disruption we were facing a year ago. 

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.

Market Talk Update 2.25.22

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Pivotal Week For Price Action
Market TalkThursday, Mar 28 2024

Energy Markets Are Ticking Modestly Higher Heading Into The Easter Weekend With Crude Oil Prices Leading The Way Up About $1.25/Barrel Early Thursday Morning

Energy markets are ticking modestly higher heading into the Easter Weekend with crude oil prices leading the way up about $1.25/barrel early Thursday morning, while gasoline prices are up around 2.5 cents and ULSD futures are about a penny.

Today is the last trading day for April HO and RBOB futures, an unusually early expiration due to the month ending on a holiday weekend. None of the pricing agencies will be active tomorrow since the NYMEX and ICE contracts are completely shut, so most rack prices published tonight will carry through Monday.

Gasoline inventories broke from tradition and snapped a 7 week decline as Gulf Coast supplies increased, more than offsetting the declines in PADDs 1, 2 and 5. With gulf coast refiners returning from maintenance and cranking out summer grade gasoline, the race is now officially on to move their excess through the rest of the country before the terminal and retail deadlines in the next two months. While PADD 3 run rates recover, PADD 2 is expected to see rates decline in the coming weeks with 2 Chicago-area refineries scheduled for planned maintenance, just a couple of weeks after BP returned from 7 weeks of unplanned repairs.

Although terminal supplies appear to be ample around the Baltimore area, we have seen linespace values for shipping gasoline on Colonial tick higher in the wake of the tragic bridge collapse as some traders seem to be making a small bet that the lack of supplemental barge resupply may keep inventories tight until the barge traffic can move once again. The only notable threat to refined product supplies is from ethanol barge traffic which will need to be replaced by truck and rail options, but so far that doesn’t seem to be impacting availability at the rack. Colonial did announce that they would delay the closure of its underutilized Baltimore north line segment that was scheduled for April 1 to May 1 out of an “abundance of caution”.

Ethanol inventories reached a 1-year high last week as output continues to hold above the seasonal range as ethanol distillers seem to be betting that expanded use of E15 blends will be enough to offset sluggish gasoline demand. A Bloomberg article this morning also highlights why soybeans are beginning to displace corn in the subsidized food to fuel race.

Flint Hills reported a Tuesday fire at its Corpus Christi West facility Wednesday, although it’s unclear if that event will have a material impact on output after an FCC unit was “stabilized” during the fire. While that facility isn’t connected to Colonial, and thus doesn’t tend to have an impact on USGC spot pricing, it is a key supplier to the San Antonio, Austin and DFW markets, so any downtime may be felt at those racks.

Meanwhile, P66 reported ongoing flaring at its Borger TX refinery due to an unknown cause. That facility narrowly avoided the worst wildfires in state history a few weeks ago but is one of the frequent fliers on the TCEQ program with upsets fairly common in recent years.

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, Mar 27 2024

Most Energy Contracts Are Ticking Lower For A 2nd Day After A Trickle Of Selling Picked Up Steam Tuesday

Most energy contracts are ticking lower for a 2nd day after a trickle of selling picked up steam Tuesday. ULSD futures are down a dime from Monday’s highs and RBOB futures are down 7 cents.

Diesel prices continue to look like the weak link in the energy chain, with futures coming within 1 point of their March lows overnight, setting up a test of the December lows around $2.48 if that resistance breaks down. Despite yesterday’s slide, RBOB futures still look bullish on the weekly charts, with a run towards the $3 mark still looking like a strong possibility in the next month or so.

The API reported crude stocks increased by more than 9 million barrels last week, while distillates were up 531,000 and gasoline stocks continued their seasonal decline falling by 4.4 million barrels. The DOE’s weekly report is due out at its normal time this morning.

RIN values have recovered to their highest levels in 2 months around $.59/RIN for D4 and D6 RINs, even though the recovery rally in corn and soybean prices that had helped lift prices off of the 4 year lows set in February has stalled out. Expectations for more biofuel production to be shut in due to weak economics with lower subsidy values seems to be encouraging the tick higher in recent weeks, although prices are still about $1/RIN lower than this time last year.

Reminder that Friday is one of only 3 annual holidays in which the Nymex is completely shut, so no prices will be published, but it’s not a federal holiday in the US so banks will be open.

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