Numerous Commodities Have Major Selloff

Market TalkThursday, May 20 2021
Pivotal Week For Price Action

Risk off seems to be the theme this week as numerous commodities and equity contracts had a major selloff Wednesday and have continued moving lower through the overnight session. Minutes from the FED meeting that suggested the endless pile of money being pumped into the economy might someday end got much of the blame for the selling, and is likely to remain a key driving force in price action for months to come.

The PADD 1 vs. PADD 3 gasoline charts below show the impact of Colonial’s shutdown on supply, while the implied demand chart shows how much extra fuel was pumped into Rubbermaid containers last week.

Despite the jump in total gasoline demand, ethanol inventories ticked slightly higher on the week as output surged to a 14-month-high. This is another example of how the best cure for high prices is high prices, as the producers who were forced to shut their doors when prices collapsed last year are now ramping back up. That situation seems to be a microcosm of the global economy, as the supply chain tries to ramp back up to meet the surge in demand as the world reopens.  

U.S. diesel inventories declined for a sixth consecutive week, and are now at their lowest level since April of last year. Unless we see diesel supplies start to climb over the summer, we could be in for a tight supply situation this fall when ag demand kicks in, since traditional diesel demand sources such as mass transit are still not back to pre-COVID levels, and yet total demand is already at average levels, and inventories are near the bottom end of their seasonal range. 

Refinery runs held steady in PADDS 2-5 last week, but ticked higher in PADD 1 as East Coast refiners were (finally) able to increase run rates at a profitable level due to the disruption. It will be interesting to watch if those PADD 1 rates drop back over the next couple of weeks as the high RIN values hit margins all over, and the short term disruption is no longer offering additional margin. There have been numerous reports of refinery blips due to the severe weather blanketing the gulf coast this week, but so far all of the disruptions seem to be fairly minor and are not interfering with supplies being shipped to other markets.

RIN values did see some modest selling during Wednesday’s session, but the moves were small compared to what we saw in grain, fuel and equity markets.  A federal court sided with the new EPA’s request to vacate three small refinery exemptions Wednesday, which could explain the relative strength while everything else was moving sharply lower. With the selling pressure already underway again this morning, this could be the biggest test yet for the runaway rally that’s added 60 cents to RIN values in just over a month. 

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

TACenergy MarketTalk Update 052021

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Market TalkFriday, May 24 2024

Selling Continues In Energy Markets After Thursday's Reversal Rally Ran Out Of Steam In The Afternoon

The selling continues in energy markets after Thursday’s reversal rally ran out of steam in the afternoon, following the lead of U.S. equity markets which had a big sell-off on the day. Prices haven’t yet fallen below the multi-month lows we saw early last week, but we’re just a couple of cents away from those levels, and the potential technical trapdoor that could lead to sharply lower values over the next couple of weeks.

We did see a brief spike in gasoline futures after the settlement Thursday following reports that Colonial had shut down Line 4 due to an IT issue, but those gains were short-lived as the pipeline was restarted without issue a few hours later. Those who remember the chaos of May 2021 after Colonial was hacked are breathing a sigh of relief, particularly on one of the busiest demand days of the year, while others are no doubt disappointed we won’t get to see the rash of fake photos of people filling up plastic bags with gasoline.

OPEC & Friends (AKA the DoC) announced they’re moving June’s policy meeting to a virtual-only affair, which the market is taking as a signal of the status quo being held on output cuts.

Chicago being Chicago: Tuesday’s 60-cent basis spike was officially wiped out by Thursday afternoon, suggesting the short-lived rally was just short covering in an illiquid market rather than a meaningful supply disruption.

RIN values continued their rally this week, touching a 4-month high at 59 cents/RIN for both D4 and D6 values Thursday. If you believe in technical analysis on something like RINs, you can see a “W” pattern formed on the charts, suggesting a run to the 80-cent range is coming if prices can get above 60. If you are more of a fundamentalist, then you’ll probably think this rally is probably more short-term short-covering by producers of RD who have changed their schedule buying back their RIN hedges for volume they’re no longer planning to produce.

NOAA issued its most aggressive Hurricane forecast ever Thursday, joining numerous other groups that think a La Nina pattern and record warm waters will create more and bigger storms this year. With the activity level seeming to be a foregone conclusion at this point, now it’s all about where those storms hit to know if this busy season will be a huge factor in energy supplies like we saw in 2005, 2008, 2012 and 2017. With the Houston area already being bombarded by floods and deadly wind this year, the refinery row across the U.S. Gulf Coast seems even more vulnerable than normal to the effects of a storm.

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

Pivotal Week For Price Action
Market TalkThursday, May 23 2024

Gasoline Prices Have Finally Found A Bid, Trading Up 3 Cents On The Day

Gasoline prices have finally found a bid, trading up 3 cents on the day after coming within a penny and a quarter of the multi-month lows set last week overnight. ULSD prices are also up a couple of cents in the early going after wiping out the gains they made last week. Both contracts are once again threatening a technical breakdown that could push prices another 20-30 cents lower if the current bounce isn’t sustained.

The EIA’s estimate for gasoline demand surged to a 7-month high last week, capping off a 4th straight week of gains that puts total consumption near the top end of the seasonal range after a very sluggish start to the year. AAA estimates that travel this Memorial Day weekend will approach a 20 year high with nearly 44 million people hitting the roads.

The EIA also published a note this morning showing average US gasoline prices are up 1% from last year, accompanied by a chart showing that average prices are down 7 cents/gallon from this time last year. The spread between retail gasoline prices on the West Coast vs the rest of the country continues to grow and is shown to be over $1.20/gallon thanks to Oregon and Washington’s Californication of their energy policies in recent years.

The EIA still seems to be struggling to figure out its accounting methods for crude oil inventories, with the adjustment factor that’s been creating all sorts of confusion the past couple of years flipping from a negative 200,000 barrels/day last week, to a positive 1.4 million barrels/day this week. You could give the EIA compilation crew a break and say that this reflects just how large and complex the US crude oil supply network is, or you could ask how did they suddenly “find” 10-million barrels of oil that they didn’t see last week.

Refiners are cranking up run rates, exceeding the levels we’ve seen this time of year in either of the past 2 years. Those higher run rates are added to the glut of diesel products that’s hanging over the majority of the country, and pushing rack spreads to levels we haven’t seen since the COVID lockdown in several markets.

The export market for US crude and refined products remains very busy with nearly 10 million barrels shipped out of the country every day. Refinery throughput was 16.2 million barrels/day last week, and more than 6 million barrels/day was exported even though gasoline and diesel exports have stagnated this year. The anticipated tick higher in US diesel exports following the rash of Russian refinery attacks has not materialized, which is no doubt contributing to the negative sentiment for diesel prices over the past month. The busy and growing export market for crude and other products also creates an interesting dynamic as we prepare for a busy hurricane season to kick off in a week as any disruption to infrastructure along the Gulf Coast could limit product going out of the country almost as much as it disrupts products flowing inland.

Basis values for RBOB in Chicago dropped 30 cents Wednesday after Tuesday’s 60 cent spike. It’s still unclear what if any impacts the confirmed fire at Exxon’s Joliet refinery, or the rumored upsets at BP’s Whiting facility have had on actual supply in the region, but the quick pullback suggests this is a flash in the pan rather than the start of a prolonged supply shortage.

Exxon reported a leak at its Beaumont TX Chemical plant, but it appears that upset isn’t impacting the operations at its adjacent refinery.

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

Pivotal Week For Price Action