More Choppy Action For Energy Contracts To Start The Last Day Of January, Which Will Be Highlighted By The Weekly Inventory Report

Market TalkWednesday, Jan 31 2024
Pivotal Week For Price Action

More choppy action for energy contracts to start the last day of January, which will be highlighted by the weekly inventory report, and a decision from the FED. Tuesday saw early morning selling largely erased in afternoon trading, with ULSD futures the only contract to end the day in the red. This morning ULSD futures are the only ones trading green, while RBOB and WTI see modest losses in the early going. Tuesday’s bounce keeps the bulls in control for now despite this week’s pullback in prices, with a strong spring rally still looking possible despite the weakness in many cash markets to start the year.

A glimmer of hope for peace? In addition to ongoing ceasefire talks in Gaza, one of Iran’s puppet armies announced it was backing down from attacks on US troops, as they try to avoid meeting the US Air Force the hard way following the deadly attacks on a base in Jordan. 

European Gasoil futures which are closely tight to ULSD (HO) futures in the US are trading lower for a 3rd straight day as traders seem to be betting that the supply disruptions caused by the re-routing of ships around the violence won’t become major. 

The FOMC will announce the latest in monetary policy at 1pm central today.  Pretty much nobody believes the FED will be changing rates today, with the CME’s Fedwatch tool showing just 2% probability of a 25-point rate reduction today. The big question for today’s whether or not the FED will signal plans to start lowering rates in March, with nearly half of the Fed Fund futures bets expecting the start of the easing then, down from 73% odds of a March cut bet a month ago.  

The API estimated crude oil and diesel stocks both declined by more than 2 million barrels last week, while gasoline stocks had a small build of around 600,000 barrels. The DOE’s weekly report will be out at its normal time this morning, and we’ll get to see how quickly refiners are coming back online after the cold snap. Don’t expect a complete bounce back in run rates this week however as there is plenty of scheduled maintenance occurring, as most refiners have been noting a busy turnaround schedule for Q1 in their earnings releases this week.  

Marathon noted two noteworthy projects in its Q4 earnings release Tuesday. The Galveston Bay facility, who earned frequent flier miles with the TCEQ in 2023 with nearly weekly upset reports, is going to install a new 90,000 distillate hydro-treater, with an expected completion in 2025. Their LA-area refinery meanwhile will be undergoing a modernization plan to improve its energy efficiency and reduce NOx emissions to meet California’s ever-changing regulations. The company did not specifically note anything about its renewable operations in the earnings release but did note in the analyst call that its converted facility in Martinez is running at less than half of its nameplate capacity after last year’s fire. For those who have been experiencing how suddenly long California is on RD this winter, just imagine if that plant was producing another 25MBD.

Phillips 66 continued the trend of good, not great, earnings in its Q4 report this morning, earning more than $800 million in its refining sector the past 3 months, down from $1.7 billion in Q3.  Unlike most of the others however, P66 continues to highlight its cost reduction strategies rather than its plans to grow, saying it achieved $1.2 billion in sustainable savings in 2023 which is AKA laying people off. The company’s conversion project in Rodeo CA is still scheduled to come online in the first quarter, although it remains unclear how long it will take between starting operations and reaching the new nameplate capacity of 50MBD of renewables output. The company continues to highlight plans to sell off roughly $3 billion in unnamed assets that don’t fit its long-term strategy.

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Market Talk Update 1.31.2024

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Market TalkTuesday, Jun 18 2024

Prices Moving Higher Today As Market Prepares For Juneteenth Holiday

Refined products are ticking higher for a 2nd day, with RBOB gasoline futures hitting their highest levels of the month at $2.46 overnight, while WTI climbed back above the $80 mark for the first time in 3 weeks.

Markets will be mostly closed tomorrow for the Juneteenth holiday. Spot markets won’t be assessed so most U.S. traders will be taking the day off, even though Nymex contracts will trade in the morning. While rack prices can always change, expect most to stay static tonight through Thursday.

Risk-taking appears to be back in style to start the week, with the S&P 500 and Nasdaq both reaching fresh record highs as big tech stocks continue to lead the way, while the DJIA bellwether index remains well off of the record high it set a month ago. The correlation between daily price moves in energy and equity markets has been weak for most of the year, but the enthusiasm of broad buying across asset classes so far this week has the markings of a classic risk-on rally, although it’s noteworthy the moves across the board are modest, suggesting the exuberance may be slightly less irrational than it was during the dot com bubble. We shall see.

While the still unnamed storm in the SW Gulf of Mexico won’t be a direct threat to the U.S. coastlines, it is a very large system that’s bringing rain to large parts of Texas (even DFW is expected to get thunderstorms from this system) and coastal flood warnings are in effect across the entire coastline of the state, stretching east into Louisiana.

There is a 2nd potential system the NHC gives 20% odds of developing in the same area as the current “Potential Cyclone” over the next week, while the other disturbance near the Bahamas is given 20% odds of being named as it heads towards the SE U.S. coast.

Ukraine’s drones continue to hit Russian energy assets, with a fuel export facility at the Azov seaport set ablaze overnight. Those attacks come amidst Ukrainian forces repelling Russia’s latest offensive near Kharkiv now that U.S. weapons have finally arrived, forcing the Russian president to float new peace options and visit military powerhouse North Korea to purchase more arms.

The CFTC reached a $55 million settlement with Trafigura over 3 separate charges the trading house A) manipulated gasoline markets by “misappropriating” material information from a counterparty in Mexico (not named, but believed to be Pemex), B) gamed the Platts Window to boost a trading position in 2017, C) coerced employees into not cooperating with investigations into the company’s manipulative practices by CFTC and other law enforcement.

Trafigura did not admit fault as part of the settlement, but did state the company had “voluntarily undertaken significant steps to enhance its compliance program…” For anyone who watched the games being played in the Platts window over the past two decades, it seems they may have got off easy. This latest settlement comes just a couple of months after the company was forced to pay $127 million in fines over bribery charges and makes you wonder if there are more charges to come.

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Market TalkMonday, Jun 17 2024

CFTC Commitment Of Traders Report Confirmed Short Covering Was Pushing Up Pricing

It’s a quiet start to the week for energy contracts with modest gains of around a penny in the early going for refined products, while crude oil contracts are up less than 50 cents/barrel.

Houthi Rebels continue to attack ships transiting the Red Sea, with the U.S. Navy forced to rescue the crew from 2 different cargo ships that were struck over the past week.

China’s refineries slowed their run rates in May as planned maintenance and weak margins were both cited as contributing to a pullback from the world’s largest oil importer.

The CFTC’s commitment of traders report Friday confirmed that short covering by money managers was most certainly pushing up prices the week prior. WTI saw nearly half of its large speculative short positions bought back in just 1 week, while Brent’s multi-year high short bets were cut by 20%. In total, more than 62,000 crude contracts and 20,000 diesel contracts were repurchased after funds realized their bet that prices would continue sliding after they’d already hit multi-month lows was a mistake. The unwinding of the big speculators’ bets on lower oil prices will no doubt thrill the Saudi Arabian oil minister who famously threatened the “gamblers” back in 2020.

The National Hurricane Center is tracking 2 potential storm systems this week, one in the SW Gulf of Mexico is now given 70% odds of being named, but is expected to move inland over Mexico and not bring a major threat, but will bring thunderstorms to the U.S. Gulf Coast this week. The other system is only given 30% odds of development off of the coast of Georgia or South Carolina and doesn’t appear to be a threat to energy infrastructure.

The EIA published its annual U.S. refining capacity report Friday, which shows operating facilities as of January 1. It finally caught up with the Beaumont facility expansion completed more than 15 months ago, marking the largest growth in U.S. capacity in nearly a decade. Total operable capacity is still below the peak set in 2019 and is expected to drop further as the P66 Rodeo facility was converted this year, and the Lyondell Houston Refinery is once again expected to shut its doors at the end of the year. Since the government’s report is so far delayed, perhaps the most interesting part is the listing of all refineries that have closed since 1990.

Total reported 24 hours of flaring at its Port Arthur, TX refinery over the weekend. The only unit mentioned as a Flare Gas Recovery system so it appears the event won’t have a major impact on operations.

Baker Hughes reported 4 more oil rigs were taken offline in the U.S. last week, bringing the total count to a 2.5-year low at 488. Natural gas rigs were unchanged on the week at 98, the lowest total since October 2021.

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Market TalkFriday, Jun 14 2024

ULSD Futures Leading The Energy Markets Recovery Rally Today With 6 Week High

The recovery rally continues in energy markets with ULSD futures leading the way reaching a 6 week high this morning. If you were one of the money managers who decided to jump on the short-selling bandwagon at the start of June, you’re now underwater by around $5/barrel for crude oil contracts, and 25 cents/gallon for diesel contracts, which appears to be adding upward pressure to the market as that hot money heads for the exits, and is forced to buy out of their losing bets.

The recovery rally in refined products hasn’t done much to help out refiners that are still looking at their worst summer margins since the COVID lockdowns. The margin outlook is even worse for refiners in other parts of the world, particularly in Asia which is dealing with a glut of supply due to a rush of capacity additions in the past 2 years. Singapore announced this week that it was offering carbon tax rebates for its refiners to try and keep them afloat and able to compete with their new competition from China and Kuwait.

The enemy of my enemy: The American Farm Bureau and Corn Growers associations joined the American Petroleum Institute in a lawsuit Thursday challenging the EPA’s vehicle emissions standards. After the Ag and Oil lobbies have spent decades competing with each other for tax incentives and mandates on ethanol and biodiesel blends, they’ve found common ground in fighting the threat of EVs on their market share, with farmers providing the logical argument that rural communities [and tractors] aren’t conducive to EV use. The Renewable Fuel Association meanwhile is promoting its solution: Plug-in electric hybrid flex-fuel vehicles, or PHEFFVs for not-so-short.

The NHC is now giving 50% odds of development for the storm system brewing off of Mexico’s eastern coastline, but even if that system is named it looks like it will head west over land before threatening the U.S. The other system that threatened Florida this week is now making its way up the East Coast, but won’t be a major storm. Florida is still dealing with flash flooding, but so far there are no reports of terminal outages or port disruptions.

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