Markets Guess What Will Come Next
Stocks are trading lower and oil prices are trading higher as the markets try to guess what will come next in the U.S./Iran conflict. The most remarkable news so far is that energy prices are up less than five percent from where they were prior to last week’s attacks, compared to a few years ago when this type of tension could have easily pushed prices up 20 percent or more.
Perhaps the most significant development of the past decade for oil markets is we changed from fears of “Peak Oil,” where lack of supply led to routine spikes over $100/barrel to fears of “Peak Oil Demand,” as OPEC and other producers are now having to voluntarily reduce their production to keep prices from collapsing and even after extreme violence in the Middle East, prices are still in the $60s as that excess supply has cushioned the impact of these events.
Prices did briefly spike overnight, with products trading up more than four cents and Brent trading north of $70 for a few hours. Most of those gains have been erased in the morning hours however, with ULSD actually trading negative on the day.
ULSD’s relative weakness appears to be at least partially a sympathetic trade with Natural Gas as warmer-than-average temperatures across the eastern half of the country limit demand for home heat. In addition, the annual holiday demand slump for diesel is in full force, with consumption down 27 percent across the U.S. last week according to the DOE’s weekly estimate. Based on prior years, we expect that slump to last another week, and then we should (hopefully) see a return to normal levels in the second week of the year.
The gasoline demand slump so far is not as bad as it has been this time over the past two years, but history suggests the worst is still ahead of us, and we probably won’t see consumption bottom out for another two weeks. This annual tradition of demand falling to its lowest levels of the year also coincides with refiners reaching their winter peak for output, which tends to create some sloppiness in spot and rack markets for the next several weeks. 2020 looks to be set to follow that trend, although the loss of PES is holding total refinery runs below the all-time highs set a year ago.
The Commitment of Traders report from the CFTC was delayed again due to the holiday, but Brent crude (reported by ICE) saw speculative length reach its highest levels in more than a year last week. No doubt money managers holding those bets on higher prices are enjoying the price spike of the past few days, and it seems likely we may see an influx of additional speculative length in the coming weeks as long as the potential for more violence in the region remains elevated.
Click here to download a PDF of today's TACenergy Market Talk.
Latest Posts
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
After Years Of Backwardation, Diesel Prices Have Slipped Into Contango Over The Past Week
Social Media
News & Views
View All
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
The Struggle For Renewable Producers Continues As A Rapid Influx Of Supply And Crashing Credit Prices Make Biodiesel
The sigh of relief selloff continues in energy markets Tuesday morning, with gasoline prices now down more than 20 cents in 7 sessions, while diesel prices have dropped 26 cents in the past 12. Crude oil prices are within a few pennies of reaching a 1 month low as a lack of headlines from the world’s hot spots allows some reflection into the state of the world’s spare capacity for both oil and refined products.
Gasoline prices are trading near a 6-week low this morning, but still need to fall about another nickel in order to break the weekly trendline that pushed prices steadily higher since December. If that trend breaks, it will be safer to say that we saw the end of the spring gasoline rally on April 12th for the 2nd year in a row. Last year RBOB futures peaked on April 12 at $2.8943 and bottomed out on May 4th at $2.2500. The high (at this point) for this year was set on April 12th at $2.8516, and the low overnight was $2.6454.
It’s not just energy commodities that are seeing an unwind of the “flight to safety” trade: Gold prices had their biggest selloff in 2 years Monday and continue to point lower today. Just how much money poured into commodities in the weeks leading up to the direct confrontation between Israel and Iran is unclear, but we have seen in year’s past that these unwind-events can create a snowball effect as traders can be forced to sell to cover their margin calls.
Supply > Demand: The EIA this morning highlighted the record setting demand for natural gas in the US last year, which was not nearly enough to offset the glut of supply that forced prices to a record low in February. A shortage of natural gas in Europe was a key driver of the chaotic markets that smashed just about every record in 2022, and an excess of natural gas supply in Europe and the US this year is acting as a buffer, particularly on diesel prices.
The struggle for renewable producers continues as a rapid influx of supply and crashing credit prices make Biodiesel, RD and SAF unprofitable for many. In addition to the plant closures announced in the past 6 months, Vertex Energy reported Monday it’s operating its Renewable Diesel facility in Mobile AL at just 50% of capacity in Q1. The truly scary part for many is that the $1/gallon Blender's tax credit ends this year and is being replaced by the “Clean” Fuel production credit that forces producers to prove their emissions reductions in order to qualify for an increased subsidy. It’s impossible to say at this point how much the net reduction will be for domestic producers, but importers will get nothing, and at current CI values, many biodiesel producers may see their “blend credit” cut by more than half.
Click here to download a PDF of today's TACenergy Market Talk.