Oil And Gasoline Prices Are Rallying Thursday After A Big Wednesday Sell-Off

Market TalkThursday, Nov 10 2022
Pivotal Week For Price Action

Oil and gasoline prices are rallying Thursday after a big Wednesday sell-off as a better-than-many-expected inflation report has taken the focus away from concerns about slumping fuel demand

US equity futures are seeing huge gains this morning following a CPI report that came in far below estimated levels.  RBOB futures have been following stocks relatively closely over the past couple of weeks and have rallied to 6 cent gains after that report while diesel prices are resisting and still trading lower for the day so far.   

NY Harbor ULSD basis set a new record at $1.25 over December ULSD futures Wednesday, which means someone was willing to pay $1.25 per gallon to have diesel today rather than taking delivery in New York Harbor by the end of December. That phenomenon is creating all sorts of ripple effects up and down the East Coast, as those with extra inventory in tank try to draw it down to avoid the 2-3 cent/day slide in values, while those with trucks search far and wide for supply a state or two south that costs substantially less.

LA Spot gasoline basis surged north of $1/gallon above RBOB futures Wednesday following the Tuesday night fire at an LA refinery. Later in the day reports surfaced that the fire did not impact production units, which may mean we’ll soon see another dramatic reversal in those prices. 

The EIA’s monthly Short Term Energy Outlook (STEO) forecast that the US would officially move into a recession late in 2022, and emerge from it in the back half of 2023. Despite the drop in demand that would come with that prediction, the report increased its forecasted diesel prices for the next year since their models suggest that won’t be enough to offset the historically low supplies in many parts of the world. New refinery capacity in the Middle East and China is coming online just in time to help with the diesel crunch, although shipping logistics will remain a bottleneck as Russian distillates will no longer flow via pipeline to Europe next year. This article from John Kemp of Reuters explains why new exports from China can help, but can’t solve the problem.

The STEO report also forecast that the tight diesel supplies will help put downward pressure on gasoline prices as refiners can still operate profitably thanks to distillate cracks well north of $1/gallon margin, even if it means taking a hit to find a home for the gasoline that nobody wants over the winter time. 

The DOE’s weekly report helped support that theory as US refinery runs continue at above-average levels in all 5 PADDs, despite the large drops in refining capacity over the past several years.  Many plants had to complete substantial maintenance this fall after many projects were delayed in the prior years. A tick higher in US diesel imports also showed that the global market can still react to high prices, despite the challenges of ocean freight logistics both domestically and abroad. Gasoline stocks dropped to a fresh 8 year low last week as strong exports and a tick higher in domestic consumption estimates helped offset the increase in refining output.

Ethanol prices have seen a healthy pullback over the past 2 days as the “cooling off” period to avoid a rail strike was extended to early December, and US ethanol production increased for a 4th straight week, which is helping keeping US inventories well above their seasonal average levels.

Hurricane Nicole made landfall as a Category 1 storm overnight roughly 60 miles south of the port of Cape Canaveral. We should find out later today whether or not there’s any damage to the terminals that receive fuel shipments in the area, but given the proximity and strength of the storm, it seems like this should be a short lived issue. Power issues appear to be the most immediate threat as there have been multiple reports of power issues causing fuel terminals in Orlando and Tampa to be offline. 

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

Market Talk Update 11.10.2022

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Pivotal Week For Price Action
Market TalkFriday, Jun 9 2023

Refined Products Bounce Back And Forth Across The Break-Even Line To Start Friday’s Trading

The choppy action continues for energy markets with refined products bouncing back and forth across the break-even line to start Friday’s trading after some big swings Thursday.

RBOB futures led the rollercoaster ride Thursday, trading up 4 cents in the early morning hours, only to see those gains turn into 10 cent losses mid-morning, and then erasing most of those losses in the early afternoon following an ENT report of unplanned maintenance at the largest refinery on the East Coast.  

The selling portion of the ride was blamed on a combination of an increase in jobless claims, and the disruptive impacts of the Canadian wildfires on the major population centers along the East Coast. While air traffic has been disrupted, so far there are not any reports of delays in ship traffic around the New York Harbor, and the strong basis and time spreads we’ve seen in NY have been easing this week, so it appears that this event is more concerning to the demand side of the equation than supply. 

From a technical perspective, it’s not surprising to see this type of back-and-forth action as most petroleum contracts look to be stuck in neutral territory on the charts, which encourages trading programs to sell as prices get towards the top end of a range, and buy when it gets to the low end. 

The Atlantic Hurricane season is off to a quiet start with no tropical development expected over the next week, but NOAA did issue an El Nino advisory Thursday that suggests the warm-water pattern in the Pacific could reach “supersized” levels and create all sorts of disruptive events. Perhaps most notable in the report is that forecasters don’t believe this year’s El Nino will have the same dampening impact on Atlantic hurricanes due to record warm temperatures in the water. Here’s a brief recap in case you missed the most memorable El Nino from 25 years ago. 

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

Pivotal Week For Price Action
Market TalkThursday, Jun 8 2023

Gasoline Futures Rally Despite Inventory Builds, Increased Throughput

Gasoline futures led another strong rally in the energy complex Wednesday and continued marching higher overnight before pulling back to near break-even levels around 7:45am central.

The RBOB contract has now wiped out the post-Memorial Day selloff, and erased the losses from the contract roll to July, setting up another test of the May highs at $2.73. If that resistance breaks, there’s a good chance we see another run at the $2.90 level, but if it holds we are probably still stuck in a sideways pattern as we move through the summer months.  West Coast gasoline prices meanwhile have reached a 3-month high as surging basis values compound the move in futures. 

The rally came despite healthy inventory builds for refined products and strong refinery runs across all 5 PADDs reported last week, with traders (or their algorithms) appearing to focus instead on healthy demand estimates in the DOE’s weekly status report. Gasoline also saw healthy exports last week, while diesel shipments overseas continued their decline which has helped keep downward pressure on diesel prices, which is essentially the polar opposite of what we were experiencing a year ago.

Lies, damned Lies and statistics:  PADD 3 refinery utilization hit 98.8% of the official capacity figure last week, which would mark a 5 year high, except the numbers are wrong. The DOE still isn’t including recent capacity additions of almost 300mb/day in those stats, so the actual figure is about 3% lower. Don’t worry though, the lack of accurate data probably isn’t intentional. The DOE recently announced it was suspending data collection for some of its monthly reports as the agency is still struggling to overcome the IT Systems failure they experienced a year ago. Add this to the realization that the official crude production and petroleum demand figures have been incorrect due to a lack of clarity surrounding condensate production that comes along with oil output.   

Speaking of which, the official US Oil output figure surged to the highest levels since the COVID lockdowns began more than 3 years ago last week. No word from the EIA if this means actual production increased, or if they’ve just changed the way they’re reporting the molecules coming out of the ground.

Irving Oil released a statement highlighting a strategic review of the company, that could include selling the business that’s been held by the Irving family for nearly 100 years. The Irving Refinery in New Brunswick is Canada’s largest at 300mb/day and is the largest importer of fuels into the northeastern US. Critics are arguing that the review is an attempt to politicize Canada’s Clean Fuel Regulation that could weigh on the refinery’s profitability when it goes into full effect in July or could simply incentivize the facility to send more product to the US.

RIN values saw their first bounce in a couple of weeks, with both D6 and D4 values climbing back above the $1.40 mark after their recent slide from the mid $1.50s. We’re still 6 days away from the EPA’s deadline to issue the final RFS ruling for the next couple of years.

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

Pivotal Week For Price Action
Market TalkWednesday, Jun 7 2023

Energy Prices Fluctuate: Chinese Imports Surge, Saudi Arabia Cuts Output and Buys Golf

Energy prices continue their back-and-forth trading, starting Wednesday’s session with modest gains, after a round of selling Tuesday wiped out the Saudi output cut bounce. 

A surge in China’s imports of crude oil and natural gas seem to be the catalyst for the early move higher, even though weak export activity from the world’s largest fuel buyer suggests the global economy is still struggling. 

New tactic?  Saudi Arabia’s plan to voluntarily cut oil production by another 1 million barrels/day failed to sustain a rally in oil prices to start the week, so they bought the PGA tour

The EIA’s monthly Short Term Energy Outlook raised its price forecast for oil, citing the Saudi cuts, and OPEC’s commitment to extend current production restrictions through 2024. The increase in prices comes despite reducing the forecast for US fuel consumption, as GDP growth projections continue to decline from previous estimates. 

The report included a special article on diesel consumption, and its changing relationship with economic activity that does a good job of explaining why diesel prices are $2/gallon cheaper today than they were a year ago.   

The API reported healthy builds in refined product inventories last week, with distillates up 4.5 million barrels while gasoline stocks were up 2.4 million barrels in the wake of Memorial Day. Crude inventories declined by 1.7 million barrels on the week. The DOE’s weekly report is due out at its normal time this morning. 

We’re still waiting on the EPA’s final ruling on the Renewable Fuel Standard for the next few years, which is due a week from today, but another Reuters article suggests that eRINs will not be included in this round of making up the rules.

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