Minor Drag Coming From Diesel Contracts Seem To Have Lost Their Luster With Investing Community
WTI traded north of $85 overnight and RBOB gasoline is above $2.52, both fresh 7 year highs as the petroleum bulls were able to maintain control despite a few rounds of heavy selling last week. With those new highs set, the charts continue to favor a run towards $90 for crude, with some minor drag coming from diesel contracts that seem to have lost their luster with the investing community.
The most exciting market last week was New York Harbor ethanol that reached a multi-year high north of $3 early in the week, only to drop by 35 cents to end the week as the supply bottleneck seems to have relieved itself to the time being. RIN markets also had a noticeable pullback on Friday after a strong rally earlier in the week.
Money managers were all over the place with petroleum contracts last week, with large increases in net length held in WTI, RBOB and Gasoil contracts, while ULSD and Brent saw sizeable reductions in the bets on higher prices. There was a big jump in new short positions held by the large speculative class of trader in both ULSD and Gasoil contracts, while WTI saw a 22% drop in shorts last week. Those moves by the large funds are correlating to the price action we’re seeing today, with RBOB and WTI both breaking to fresh 7 year highs while ULSD lags behind, needing another 4 cents to catch up to the rest of the complex.
Baker Hughes reported a net decline of 2 oil rigs working in the US last week, snapping a streak of 5 straight weekly increases. Wyoming accounted for the bulk of the drop, with a net decrease of 3 rigs, while the other states combined to add 1. A WSJ article Friday highlighted the challenges drillers are having finding employees and equipment (along with pretty much every other industry) which seems to be limiting the number of active oil rigs these days much more than price. If you need a reminder of why we’re still extremely fortunate despite these tight supply chains, read about the explosion at an illegal Nigerian refinery last week.
While the US is facing a trifecta of severe weather this week with a Bomb Cyclone hitting the West Coast, Tornados threatening much of the south, and a Nor’easter pummeling the East Coast, the tropics remain quiet with just over 5 weeks left in the Atlantic Hurricane season, so any impacts this week are likely to be reduced demand in areas hardest hit, without any major threat to supply infrastructure.
Click here to download a PDF of today's TACenergy Market Talk.
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Week 15 - US DOE Inventory Recap
Prices To Lease Space On Colonial’s Main Gasoline Line Continue To Rally This Week
Energy markets are sliding lower again to start Wednesday’s trading as demand concerns and weaker stock markets around the world seem to be outweighing any supply concerns for the time being.
Rumors continue to swirl about an “imminent” response by Israel to Iran’s attacks, but so far, no news seems to be taken as good news in the hopes that further escalation can be avoided, even as tensions near the Red Sea and Strait of Hormuz continue to simmer.
Prices to lease space on Colonial’s main gasoline line continue to rally this week, trading north of 11 cents/gallon as Gulf Coast producers still struggle to find outlets for their production, despite a healthy export market. Gulf Coast CBOB is trading at discounts of around 34 cents to futures, while Gulf Coast RBOB is trading around a 16-cent discount, which gives shippers room to pay up for the linespace and still deliver into the East Coast markets at a profit.
Back to reality, or just the start of more volatility? California CARBOB basis values have dropped back to “only” 40 cent premiums to RBOB futures this week, as multiple flaring events at California refineries don’t appear to have impacted supply. The state has been an island for fuel supplies for many years as its boutique grades prevent imports from neighboring states, and now add the conversion of the P66 Rodeo refinery to renewable diesel production and the pending changes to try and cap refinery profits, and it’s easier to understand why these markets are increasingly vulnerable to supply shocks and price spikes on gasoline.
RIN prices continue to fall this week, touching 44 cents/RIN for D4 and D6 values Tuesday, their lowest level in 6 weeks and just about a nickel above a 4-year low. While the sharp drop in RIN and LCFS values has caused several biodiesel and Renewable Diesel producers to either shut down or limit production, the growth in RIN generation continues thanks to projects like the Rodeo refinery conversion, making the supply in RINs still outpace the demand set by the Renewable Fuel Standard by a wide margin.
The API reported draws in refined products, 2.5 million barrels for gasoline and 427,000 barrels for distillates, while crude oil stocks had an estimated build of more than 4 million barrels. The DOE’s weekly report is due out at its normal time this morning.
Click here to download a PDF of today's TACenergy Market Talk.
Equity Markets Have Been Pulling Back Sharply In Recent Days As Inflation And Trade Concerns Inject A Sense Of Reality Into Stocks
It’s a mixed bag for energy markets to start Tuesday’s session with gasoline prices holding small gains, while oil and diesel prices show small losses as the world anxiously debates what comes next in the conflict, we’re still hoping we don’t have to call a war in the Middle East.
An early sell-off picked up steam Monday morning with refined products down more than a nickel for a few minutes, before reports that Israel was vowing to respond to Iran’s attack seemed to encourage buyers step back in an erase most of the losses for the day.
Equity markets have been pulling back sharply in recent days as inflation and trade concerns inject a sense of reality into stocks that had been flying high earlier in the year. The correlation between gasoline and crude oil prices had been fairly strong for the past couple of months but has since weakened as the weakness in stocks hasn’t yet trickled over into the energy arena. Both asset classes are seeing a tick higher in their volatility (aka Fear) indices this week however, and when fear starts driving the trade, we often see these prices move together.
Diesel has been underperforming the rest of the energy complex for most of the year so far, and those hoping for lower diesel prices got more good news when the Dangote refinery in Nigeria began loading diesel for domestic use Monday, in the latest milestone for the giant project that will have a major influence on Atlantic basin supply. Naturally, local lawmakers are already complaining that the refinery’s prices are too high.
The EIA this morning highlighted the record amount of crude oil China imported in 2023 after reopening the country post-COVID and after completing numerous new refinery builds in the past few years. Russia accounted for the largest increase in shipments to China last year, as China is one of the few countries that doesn’t mind ignoring sanctions. Speaking of which, the US House is expected to take up a new vote this week on sanctioning Chinese imports of Iranian crude, which the EIA notes are often hidden by relabeling the crude to make it appear as if it originated in Malaysia, Oman or the UAE.
We’re just 2 weeks away from the startup of Canada’s long-awaited Transmountain pipeline expansion that will bring roughly 600,000 barrels/day of capacity to the Pacific basin. That new outlet is great news for Canadian producers long restricted by takeaway capacity, and bad news for Midcontinent refiners who have grown accustomed to the discounted Canadian grades. A Bloomberg article Monday noted that Iraq’s Basrah Heavy crude is most likely to be displaced by West Coast US refiners who can now buy much closer to home.
Click here to download a PDF of today's TACenergy Market Talk.