Oil And Diesel Prices Hitting Fresh 8 Month Highs

Market TalkWednesday, Nov 25 2020
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Oil and diesel prices are hitting fresh 8 month highs this morning and the big 4 petroleum futures contracts are now each up more than 30% from the lows set November 1st with a variety of technical and fundamental factors contributing to the surge.

The DJIA breaching 30,000 seems to be giving plenty of sentimental boost as investors are taking a risk-on stance, and there is clear technical momentum now that the top end of the long-lasting sideways trading range has finally broken.   

Perhaps most notable on the charts is that ULSD futures finally filled the gap in their chart left behind during the March collapse. There’s still another 20 cents of upside for distillates to reach their March highs, but short term warning signals are suggesting the contract is overbought following an 8 day streak of gains, and due for a corrective pull back in the near future.

Expectations that OPEC & Friends will be forced to extend output cuts, and another missile strike on Saudi Arabian energy infrastructure are both getting credit for the fundamental reasoning for this rally. The good news is the Saudi facility suffered minimal damage from the missile that was reportedly able to travel more than 300 miles through the air, but was apparently unable to break through the outer wall of a diesel storage tank. 

The API was said to show builds in crude oil and gasoline inventories last week of 3.8 and 1.3 million barrels respectively, while distillates drew by 1.8 million barrels. The builds in inventory were getting credit for a pause in the rally overnight, but seem to be ignored now that the buyers have stepped back in.  The DOE/EIA’s weekly status report is due out at its normal time this morning.

An EIA note this morning shows US gasoline prices are holding near their lowest in 10 years heading into what is traditionally the busiest travel day of the year. The note also highlights the expected reductions in travel this Thanksgiving holiday by car (4%) air (48%) and mass transit (76%) due to COVID.

That huge difference between automobiles (which primarily run on gasoline) and other transportation methods (which rely heavy on various distillates) is one of many challenges refiners are facing as they attempt to shift output to match the unprecedented changes in demand this year. 

Speaking of which, there was yet another refining casualty this week as Total announced it was halting operations the Donges refinery in Western France due to poor economic conditions.  The shutdown is expected to last several months, but the plant is moving forward with a major upgrading project suggesting that it could return to service once demand gets back to normal.

NYMEX contracts will trade Thursday and Friday, but only Friday’s trading will have a settlement. Spot markets will not be assessed either day, so most rack prices will carry through from tonight to Monday. 

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

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Pivotal Week For Price Action
Market TalkFriday, Dec 9 2022

Energy Futures Are Seeing Modest Gains To Start Friday’s Session

Energy futures are seeing modest gains to start Friday’s session, limping towards the finish line of a week that’s pushed prices to their lowest levels of the year, and cut 20-30 cents off of refined products. 

WTI futures have had a fairly muted reaction to news that the Keystone pipeline was forced to shut after more than ½ million gallons reportedly spilled into a Kansas creek this week. A timeline for restart is still unclear, but so far the price action suggests refiners aren’t panicking about where they’ll find replacement barrels, and those north of the spill may be rewarded with discounted barrels that now find themselves stranded, such as Western Canadian Select which is now trading down to $50/barrel.  

If RBOB can finish in the green today, it would mark the first trading day so far in December where the gasoline contract didn’t end lower, after 6 straight losing sessions. Cash markets are also looking weak, as the spread between gasoline prices in New York and the Gulf Coast dropped to its lowest level since early October this week, putting downward pressure on the price to lease space on Colonial’s Line 1. With refiners running full out to capture huge diesel margins, gasoline is becoming an unwelcome byproduct in many markets, and could become oversupplied in some regions in the near future, which could force some plants to reduce run rates. 

Distillate prices are seeing a similar convergence with the spread between Gulf and East coasts now less than 30 cents/gallon, which is more than $1/gallon lower than it was a month ago. Softer demand for both products due to the seasonal slowdown in gasoline and unseasonably warm weather limiting Heating Oil consumption are both getting credit for these cash markets suddenly returning to something more closely resembling what we’re used to seeing. 

Bad news is good news for stock markets as any negative data points may give the FED reason to slow their interest rate hikes.  Yesterday we saw stocks rally after an increase in jobless claims in the US. Today we’re seeing stocks give back some of yesterday’s gains after the PPI report showed inflation is remaining stubbornly high and above many forecasts, giving the FED another reason to continue with its tightening. Energy contracts continue to have a weak correlation to daily moves in equity prices, so it’s not too surprising we are seeing a small rally today even though stocks are pulling back.

Chinese refiners are racing to take advantage of liberal quotas this year and are expected to reach a record level of refined fuel exports this month.  Those supplies have provided a much needed supplement for a world short on distillates, but there are many questions and few answers about what they’ll look like next year.

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

Pivotal Week For Price Action
Market TalkThursday, Dec 8 2022

Refined Product Prices Are Bouncing Moderately This Morning After Selling Off Heavily For A Fifth Consecutive Trading Session Yesterday

Refined product prices are bouncing moderately this morning after selling off heavily for a fifth consecutive trading session yesterday. Heating oil futures have dropped over 50 cents per gallon since the beginning of the month as traders reconcile rebounding national distillate inventories, a warmer-than-expected European winter, dismal Chinese demand outlook, and the execution of the ban on Russian oil exports. Gasoline futures have dropped just over 25 cents so far in December while the West Texas Intermediate crude oil contract has fallen just $5 per barrel since last week.

The Department of Energy reported a 5.2 million barrel draw in crude oil inventories last week, marking the fourth consecutive week of stockpile drawdowns. On the flip side, national gasoline and diesel stocks likewise grew for the fourth week in a row, which makes sense given refineries are running near their 5-year seasonal high. Total refined product demand continued to sink, as typical of this time of year before everyone jumps in their cars to drive to grandma’s for Christmas.  

Oil futures have fallen below the $80 mark this week and have now given up all gains seen since Russia invaded Ukraine. While China’s relaxation of their pandemic policy should provide some upward pressure on oil prices, in theory, it seems most aren’t convinced the lack of restrictions will translate to increased petroleum demand.

Premiums to ship gasoline and diesel on the Colonial Pipeline (the main US’s petroleum artery going from Houston to New York) have dropped significantly over the past few days. Shippers can now move gasoline up the Eastern seaboard for “only” 9 cents above the pipeline’s tariff, which is the lowest its been since October. Moving diesel to the Northeast will run you 7 cents over costs.

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

Pivotal Week For Price Action
Market TalkWednesday, Dec 7 2022

The Downward Price Action Seen In Monday’s Trading Session Continued Into Tuesday

The downward price action seen in Monday’s trading session continued into Tuesday and energy futures charts are poised to test some significant resistance levels. Most notably, the prompt month ULSD futures contract is set to test its 100-week moving average at the ~$2.80 level, beyond which the path is open for prices to fall down to the $2.20s.

WTI crude oil futures face a tough test these next couple months as it bears down on its 200-month moving average which, if broken, could lead prices down to the $65 range. The energy complex is bouncing this morning, albeit moderately, on the news that China is abandoning its COVID testing and quarantine protocols. The mild upward price action suggests traders are hesitant to believe that will translate to a return of energy demand.

The Energy Information Administration published its monthly Short Term Energy Outlook yesterday, highlighting its higher-than-expected global oil inventory level estimate for 2023. The EIA also noted that the execution of the ban on Russian seaborne petroleum products by the European Union has rendered the future of distillate remarkedly hazy. Price direction for diesel’s home-heating counterpart seems a little easier to forecast: moderately higher prices are expected through January as winter sets in and demand ramps up.

The American Petroleum Institute reported a sizeable 6.4 million barrel draw in US crude oil inventories last week, along with builds in refined product stocks of 5.9 million barrels and 3.6 million barrels of gasoline and diesel, respectively. The official report published by the Department of Energy is due to come out at its regular time this morning (9:30am CST) and its confirmation or contradiction of the API’s estimate will likely determine the day’s trading sentiment.

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