Most Energy Contracts Are Seeing Modest Gains To Start Thursday’s Session

Market TalkThursday, May 5 2022
Pivotal Week For Price Action

Most energy contracts are seeing modest gains to start Thursday’s session after the FED and fundamentals both gave a big boost to buyers Wednesday. 

The only contract moving into the red this morning is June HO which is seeing its premium to outer months come back to something resembling sanity, while the majority of the complex moves higher.

While the FOMC announcement sent stocks on one of their biggest daily rallies on record, energy contracts were already staging a strong rally as the weekly inventory reports from the API and DOE remind buyers that there are no short term solutions to the supply crunch. 

A surge in gasoline imports helped PADD 1 inventories tick higher after reaching a multi-year low last week, while the rest of the US saw healthy declines. Diesel does not have the luxury of international length coming to the rescue, pushing total US inventories to a fresh 8 year low, while PADD 1 stocks fell to a new record low. The arbitrage window from just about anywhere in the US to the East Coast is wide open for those with a truck, train or boat, the people to drive them and the nerves to ship into a market that’s trading $1.30/gallon lower in September than it is today.  

The PADD 1 refiners that survived several bleak years are being rewarded for their perseverance with diesel margins that are being measured in dollars per gallon instead of dollars per barrel, and have increased run rates to their highest level since the start of the pandemic as a result. While other refiners have discussed delaying maintenance this summer to continue operating in this rare margin environment, run rates in each of the other 4 PADDs declined on the week which certainly isn’t helping the tight supply situations in most markets.

As expected, the FOMC announced a 50 point rate increase Wednesday, the first increase of that size in almost 22 years. What surprised just about everyone however was that the FED chair took the idea of a 75 point hike at the upcoming meetings off the table, which sparked a huge rally in equities that seemed to spill over into energy contracts as well. The CME’s Fedwatch tool shows that essentially no one is betting on a Fed Funds rate of 1.75% or higher in July, whereas yesterday before the announcement, 99% of the wagers were at or above that level.

While the FED probably can’t do anything to flatten the front end of the backwardated diesel curve, it is likely that the rally in equities could encourage more buying in the forward months for crude oil and diesel as a slower pace of interest rate hikes seems to reduce the likelihood of a recession.

Meanwhile, don’t expect politicians to sit back and not pretend to do nothing about high fuel prices in an election year. Congress is taking another run at making OPEC illegal as the mid-terms draw near. Read here to see what it would take to actually make this a law after numerous failed attempts in previous decades, and what the risks are if it happens.

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

Market Talk Update 05.05.22

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Market TalkFriday, Jul 19 2024

Summertime-Friday-Apathy Trade Influencing Energy Markets

Energy markets are treading water to start the day as the Summertime-Friday-Apathy trade seems to be influencing markets around the world in the early going. RBOB futures are trying for a 3rd straight day of gains to wipe out the losses we saw to start the week, while ULSD futures continue to look like the weak link, trading lower for a 2nd day and down nearly 3 cents for the week.

Bad to worse: Exxon’s Joliet refinery remains offline with reports that repairs may take through the end of the month. On top of that long delay in restoring power to the facility, ENT reported this morning that the facility has leaked hydrogen fluoride acid gas, which is a dangerous and controversial chemical used in alkylation units. Chicago basis values continue to rally because of the extended downtime, with RBOB differentials approaching a 50-cent premium to futures, which sets wholesale prices just below the $3 mark, while ULSD has gone from the weakest in the country a month ago to the strongest today. In a sign of how soft the diesel market is over most of the US, however, the premium commanded in a distressed market is still only 2 cents above prompt futures.

The 135mb Calcasieu Refinery near Lake Charles LA has been taken offline this morning after a nearby power substation went out, and early reports suggest repairs will take about a week. There is no word yet if that power substation issue has any impacts on the nearby Citgo Lake Charles or P66 Westlake refineries.

Two tanker ships collided and caught fire off the coast of Singapore this morning. One ship was a VLCC which is the largest tanker in the world capable of carrying around 2 million barrels. The other was a smaller ship carrying “only” 300,000 barrels (roughly 12 million gallons) of naphtha. The area is known for vessels in the “dark fleet” swapping products offshore to avoid sanctions, so a collision isn’t too surprising as the vessels regularly come alongside one another, and this shouldn’t disrupt other ships from transiting the area.

That’s (not) a surprise: European auditors have determined the bloc’s green hydrogen goals are unattainable despite billions of dollars of investment, and are based on “political will” rather than analysis. Also (not) surprising, the ambitious plans to build a “next-gen” hydrogen-powered refinery near Tulsa have been delayed.

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

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Market TalkThursday, Jul 18 2024

Refined Products Stanch Bleeding Despite Inventory Builds And Demand Slump

Refined products are trading slightly lower to start Thursday after they stopped the bleeding in Wednesday’s session, bouncing more than 2 cents on the day for both RBOB and ULSD, despite healthy inventory builds reported by the DOE along with a large slump in gasoline demand.

Refinery runs are still above average across the board but were pulled in PADD 3 due to the short-term impacts of Beryl. The Gulf Coast region is still outpacing the previous two years and sitting at the top end of its 5-year range as refiners in the region play an interesting game of chicken with margins, betting that someone else’s facility will end up being forced to cut rates before theirs.

Speaking of which, Exxon Joliet was reportedly still offline for a 3rd straight day following weekend thunderstorms that disrupted power to the area. Chicago RBOB basis jumped by another dime during Wednesday’s session as a result of that downtime. Still, that move is fairly pedestrian (so far) in comparison to some of the wild swings we’ve come to expect from the Windy City. IIR via Reuters reports that the facility will be offline for a week.

LA CARBOB differentials are moving in the opposite direction meanwhile as some unlucky seller(s) appear to be stuck long and wrong as gasoline stocks in PADD 5 reach their highest level since February, and held above the 5-year seasonal range for a 4th consecutive week. The 30-cent discount to August RBOB marks the biggest discount to futures since 2022.

The EIA Wednesday also highlighted its forecast for rapid growth in “Other” biofuels production like SAF and Renewable Naptha and Propane, as those producers capable of making SAF instead of RD can add an additional $.75/gallon of federal credits when the Clean Fuels Producer’s Credit takes hold next year. The agency doesn’t break out the products between the various “Other” renewable fuels, but the total projected output of 50 mb/day would amount to roughly 2% of total Jet Fuel production if it was all turned to SAF, which of course it won’t as the other products come along for the ride similar to traditional refining processes.

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

Pivotal Week For Price Action