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. 

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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