New Month Sees New Downward Pressure, Market Awaits EIA Report & OPEC Meeting

After a week of heavy selling, refined products had an emphatic recovery rally to end January’s trading, only to start February off on their heels once again. ULSD prices bounced 15 cents off of Tuesday’s low trade, earning back roughly 20% of the losses seen in the previous 5 sessions, and keeping the upward trendline started back in December intact.
Both products pulled back in the overnight session after the API reported more inventory builds across the board last week. Oil inventories were said to increase by 6.3 million barrels, while gasoline stocks were up 2.7 million and distillates were up 1.5 million. The rise in oil inventories is likely a sign that refinery runs remain below expected levels for a 6th week following the Christmas blizzard and several other unplanned maintenance events. The fact that refined products continue to build despite those slower refinery runs is likely a sign that demand remains in the winter doldrums, although it’s impossible to say how much is caused by the parade of winter storms, and how much is a sign of a slowing economy.
The EIA’s weekly report is due out at its normal time this morning, and should give us a good update on the status of refinery output. Speaking of which, Exxon noted in its earnings call that the Beumont refinery expansion is on pace to bring another 250mb/day of output online in Q1, which is the largest increase in capacity in a decade for the US, and the first of more than 200mb in 4 years. That’s great news for those hoping to see some relief in the supply network this year, but the bad news is that we’re expected to lose another 250mb/day later this year when the Houston Refining facility is shuttered, and another 130mb/day early in 2024 when P66 converts its Rodeo CA facility to RD production
OPEC & Friends are meeting today to discuss their output quotas. That meeting has been largely dismissed by many in the market since it’s being held virtually, which has become a symbol that the cartel is not planning to make any changes to its agreements. In addition OPEC’s president is making it clear that they want to see more data on production and consumption before deciding on a policy change.
San Francisco gasoline prices were already the most expensive in the country after a basis rally last week to a 30 cent premium vs futures as the West Coast begins the spring RVP transition. Bay Area basis values jumped again Tuesday after reports of a fire at the Martinez refinery, although later it was suggested that fire would not impact operations at the plant as it occurred out equipment that was no longer in service.
Click here to download a PDF of today's TACenergy Market Talk.
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Gasoline Futures Are Leading The Energy Complex Higher This Morning With 1.5% Gains So Far In Pre-Market Trading
Gasoline futures are leading the energy complex higher this morning with 1.5% gains so far in pre-market trading. Heating oil futures are following close behind, exchanging hands 4.5 cents higher than Friday’s settlement (↑1.3%) while American and European crude oil futures trade modestly higher in sympathy.
The world’s largest oil cartel is scheduled to meet this Wednesday but is unlikely they will alter their supply cuts regimen. The months-long rally in oil prices, however, has some thinking Saudi Arabia might being to ease their incremental, voluntary supply cuts.
Tropical storm Rina has dissolved over the weekend, leaving the relatively tenured Philippe the sole point of focus in the Atlantic storm basin. While he is expected to strengthen into a hurricane by the end of this week, most projections keep Philippe out to sea, with a non-zero percent chance he makes landfall in Nova Scotia or Maine.
Unsurprisingly the CFTC reported a 6.8% increase in money manager net positions in WTI futures last week as speculative bettors piled on their bullish bets. While $100 oil is being shoutedfromeveryrooftop, we’ve yet to see that conviction on the charts: open interest on WTI futures is far below that of the last ~7 years.
Click here to download a PDF of today's TACenergy Market Talk.

The Energy Bulls Are On The Run This Morning, Lead By Heating And Crude Oil Futures
The energy bulls are on the run this morning, lead by heating and crude oil futures. The November HO contract is trading ~7.5 cents per gallon (2.3%) higher while WTI is bumped $1.24 per barrel (1.3%) so far in pre-market trading. Their gasoline counterpart is rallying in sympathy with .3% gains to start the day.
The October contracts for both RBOB and HO expire today, and while trading action looks to be pretty tame so far, it isn’t a rare occurrence to see some big price swings on expiring contracts as traders look to close their positions. It should be noted that the only physical market pricing still pricing their product off of October futures, while the rest of the nation already switched to the November contract over the last week or so.
We’ve now got two named storms in the Atlantic, Philippe and Rina, but both aren’t expected to develop into major storms. While most models show both storms staying out to sea, the European model for weather forecasting shows there is a possibility that Philippe gets close enough to the Northeast to bring rain to the area, but not much else.
The term “$100 oil” is starting to pop up in headlines more and more mostly because WTI settled above the $90 level back on Tuesday, but partially because it’s a nice round number that’s easy to yell in debates or hear about from your father-in-law on the golf course. While the prospect of sustained high energy prices could be harmful to the economy, its important to note that the current short supply environment is voluntary. The spigot could be turned back on at any point, which could topple oil prices in short order.
Click here to download a PDF of today's TACenergy Market Talk.

Gasoline And Crude Oil Futures Are All Trading Between .5% And .8% Lower To Start The Day
The energy complex is sagging this morning with the exception of the distillate benchmark as the prompt month trading higher by about a penny. Gasoline and crude oil futures are all trading between .5% and .8% lower to start the day, pulling back after WTI traded above $95 briefly in the overnight session.
There isn’t much in the way of news this morning with most still citing the expectation for tight global supply, inflation and interest rates, and production cuts by OPEC+.
As reported by the Department of Energy yesterday, refinery runs dropped in all PADDs, except for PADD 3, as we plug along into the fall turnaround season. Crude oil inventories drew down last week, despite lower runs and exports, and increased imports, likely due to the crude oil “adjustment” the EIA uses to reconcile any missing barrels from their calculated estimates.
Diesel remains tight in the US, particularly in PADD 5 (West Coast + Nevada, Arizona) but stockpiles are climbing back towards their 5-year seasonal range. It unsurprising to see a spike in ULSD imports to the region since both Los Angeles and San Francisco spot markets are trading at 50+ cent premiums to the NYMEX. We’ve yet to see such relief on the gasoline side of the barrel, and we likely won’t until the market switches to a higher RVP.