Mixed Bag For Energy Markets To Start Friday After Thursday Near 3-Month Highs

Market TalkFriday, Jul 14 2023
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It’s a mixed bag for energy markets to start Friday’s session after another strong finish Thursday pushed prices closer to 3-month highs. Supply disruptions and stronger equity markets both seem to be contributing to the recent price rally, while the recession fears seem to have been put on the back burner for now. The moves have not been particularly impressive, however, and there are still mixed messages being sent by the daily and weekly charts, so a pullback in the coming days to relieve an over-bought market is looking likely. 

More than 12 years after a revolution, Libya is still struggling to figure out who’s calling the shots. This week, 3 of the country’s largest oil fields have been shut in due to protests, taking around 400,000 barrels/day of production offline. Libya, Nigeria, Venezuela, and Iran are all exempt from the OPEC & Friends voluntary production cuts, and up until this latest shut-in, that had been a bearish factor on prices as exports from these underachieving producers had been growing.

Another day, another California Refinery having issues: Chevron’s refinery in Richmond CA was forced to shut units on Thursday for unplanned repairs. Basis values across the state had rallied sharply in the past week as a rash of unplanned issues hit the majority of the refineries left in the state, but dropped sharply this week after the DOE report showed actual run rates had increased to a 3-year high despite those operating hiccups. So far the Chevron news hasn’t stirred up much in the SF Bay area spot market, but there’s a chance we could see another big bounce if the downtime is significant.

So far the Texas energy grid has held up well after consecutive days of record energy use.  With another week of near-record heat and energy consumption in the forecast, there is a concern we could end up seeing refinery disruptions if the grid struggles, although it seems very unlikely we’ll see anything resembling the chaotic shutdowns we did in February 2021.

The EPA issued a statement this morning that said it would be announcing decisions involving petitions from small refineries for exemption from the Renewable Fuel Standard at 4 pm Eastern time today. In years past the yo-yo policies on small refinery exemptions (which largely depended on the party controlling the white house at the time) have had an outsized influence on RIN price movements. It’s hard to imagine the current administration changing its stance and suddenly going easy on refiners after denying essentially every petition the past couple of years, but nevertheless, RIN traders will be forced to pay attention this afternoon.

California’s Air Resource Board (CARB) announced another workshop to review potential amendments to its Cap & Trade Program on Wednesday, which sent CCA values rallying Thursday to their highest level in more than a year. While it’s still very much unknown what changes will be proposed, or whether or not those proposals will become law, there’s no mistaking the agency's attempt to make things harder on the industry, which favors higher credit values. LCFS values meanwhile continue their recent slide as the rapid influx of new renewable production continues to increase the supply of those credits, which are generated by renewable producers, whereas the CCA credits are just made up by CARB. 

Subtropical storm Don has formed in the Atlantic, but won’t be a threat to land, and just offers another reminder that while we’re enjoying a Saharan Dust-induced reprieve from hurricane activity at the moment, the stage is set for the tropics to crank up in a hurry at some point this summer. 

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Market Talk Update 07-14-23

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Market TalkFriday, May 17 2024

The Recovery Rally In Energy Markets Continues For A 3rd Day

The recovery rally in energy markets continues for a 3rd day with refined product futures both up more than a dime off of the multi-month lows we saw Wednesday morning. The DJIA broke 40,000 for the first time ever Thursday, and while it pulled back yesterday, US equity futures are suggesting the market will open north of that mark this morning, adding to the sends of optimism in the market.

Despite the bounce in the back half of the week, the weekly charts for both RBOB and ULSD are still painting a bearish outlook with a lower high and lower low set this week unless the early rally this morning can pick up steam in the afternoon. It does seem like the cycle of liquidation from hedge funds has ended however, so it would appear to be less likely that we’ll see another test of technical support near term after this bounce.

Ukraine hit another Russian refinery with a drone strike overnight, sparking a fire at Rosneft’s 240mb/day Tuapse facility on the black sea. That plant was one of the first to be struck by Ukrainian drones back in January and had just completed repairs from that strike in April. The attack was just one part of the largest drone attack to date on Russian energy infrastructure overnight, with more than 100 drones targeting power plants, fuel terminals and two different ports on the Black Sea. I guess that means Ukraine continues to politely ignore the White House request to stop blowing up energy infrastructure in Russia.

Elsewhere in the world where lots of things are being blown up: Several reports of a drone attack in Israel’s largest refining complex (just under 200kbd) made the rounds Thursday, although it remains unclear how much of that is propaganda by the attackers and if any impact was made on production.

The LA market had 2 different refinery upsets Thursday. Marathon reported an upset at the Carson section of its Los Angeles refinery in the morning (the Carson facility was combined with the Wilmington refinery in 2019 and now reports as a single unit to the state, but separately to the AQMD) and Chevron noted a “planned” flaring event Thursday afternoon. Diesel basis values in the region jumped 6 cents during the day. Chicago diesel basis also staged a recovery rally after differentials dropped past a 30 cent discount to futures earlier in the week, pushing wholesale values briefly below $2.10/gallon.

So far there haven’t been any reports of refinery disruptions from the severe weather than swept across the Houston area Thursday. Valero did report a weather-related upset at its Mckee refinery in the TX panhandle, although it appears they avoided having to take any units offline due to that event.

The Panama Canal Authority announced it was increasing its daily ship transit level to 31 from 24 as water levels in the region have recovered following more than a year of restrictions. That’s still lower than the 39 ships/day rate at the peak in 2021, but far better than the low of 18 ships per day that choked transit last year.

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

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Market TalkThursday, May 16 2024

Energy Prices Found A Temporary Floor After Hitting New Multi-Month Lows Wednesday

Energy prices found a temporary floor after hitting new multi-month lows Wednesday morning as a rally to record highs in US equity markets and a modestly bullish DOE report both seemed to encourage buyers to step back into the ring.

RBOB and ULSD futures both bounced more than 6 cents off of their morning lows, following a CPI report that eased inflation fears and boosted hopes for the stock market’s obsession of the FED cutting interest rates. Even though the correlation between energy prices and equities and currencies has been weak lately, the spillover effect on the bidding was clear from the timing of the moves Wednesday.

The DOE’s weekly report seemed to add to the optimism seen in equity markets as healthy increases in the government’s demand estimates kept product inventories from building despite increased refinery runs.

PADD 3 diesel stocks dropped after large increases in each of the past 3 weeks pushed inventories from the low end of their seasonal range to average levels. PADD 2 inventories remain well above average which helps explain the slump in mid-continent basis values over the past week. Diesel demand showed a nice recovery on the week and would actually be above the 5 year average if the 5% or so of US consumption that’s transitioned to RD was included in these figures.

Gasoline inventories are following typical seasonal patterns except on the West Coast where a surge in imports helped inventories recover for a 3rd straight week following April’s big basis rally.

Refiners for the most part are also following the seasonal script, ramping up output as we approach the peak driving demand season which unofficially kicks off in 10 days. PADD 2 refiners didn’t seem to be learning any lessons from last year’s basis collapse and rapidly increased run rates last week, which is another contributor to the weakness in midwestern cash markets. One difference this year for PADD 2 refiners is the new Transmountain pipeline system has eroded some of their buying advantage for Canadian crude grades, although those spreads so far haven’t shrunk as much as some had feared.

Meanwhile, wildfires are threatening Canada’s largest oil sands hub Ft. McMurray Alberta, and more than 6,000 people have been forced to evacuate the area. So far no production disruptions have been reported, but you may recall that fires in this region shut in more than 1 million barrels/day of production in 2016, which helped oil prices recover from their slump below $30/barrel.

California’s Air Resources Board announced it was indefinitely delaying its latest California Carbon Allowance (CCA) auction – in the middle of the auction - due to technical difficulties, with no word yet from the agency when bidders’ security payments will be returned, which is pretty much a nice microcosm for the entire Cap & Trade program those credits enable.

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

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