Oil Prices Slide Lower As Banking Crisis Continues, Refined Products Show Relative Strength

Market TalkTuesday, Mar 14 2023
Pivotal Week For Price Action

Oil prices are sliding lower to start Tuesday’s action with headlines blaming the banking crisis for the move even while banking stocks are rallying to start the day. Refined product prices have found relative strength compared to crude oil prices following a few bullish elements for both supply and demand globally. 

Strikes at French refineries are continuing for a 7th day, and several are now reaching a tipping point as storage tanks have reached capacity even while operating at minimal levels.  That means the striking workers will either need to allow some products to flow – as they’ve done in a few cases so far – or force the plants to shut down their operating units. Note that the protestors have also shut in production at a Renewable Diesel (which is known as Hydrotreated Vegetable Oil, or HVO, in Europe) refinery, which suggests pension reform matters more than saving the planet.

Chinese diesel exports are reportedly dropping rapidly as increased domestic demand as the country reopens is keeping more barrels at home. 

The storm sweeping much of the East Coast, after the winter that wasn’t, seems to be contributing to the relative strength in ULSD so far this week, as we’re seeing calendar and prompt NYH basis spreads rally as there may be one last shot of heating demand before spring takes hold, and deliveries in and around the harbor may be delayed by high winds.

The February CPI report showed inflation continues to hang on, with prices rising .4% for the month and 6% for the year, both in line with several published estimates. The index without food and energy prices included was up .5% on the month as costs for housing increased more than other items. The drop in natural gas and diesel prices were key contributors to a drop in energy costs, which helped to limit the increases in food and other services. Both equity and energy prices dipped in the first minute after the report was released but quickly recovered as this report doesn’t seem to offer enough to change anything that the FED might do to either combat inflation or soothe the fears in the banking industry.

The CME’s Fedwatch tool shows how rapidly bets on treasury rates have changed this week, with nearly 100% odds that the FED would actually be forced to make a rate cut by the July meeting yesterday, after a 0% probability being priced in a week ago. Already this morning odds of a rate cut have been cut in half from yesterday’s levels, which combined with the recovery in bank stock prices so far today suggests that markets may already be calming down. Remember that the amount of money flowing through treasury and equity markets is many times larger than the funds flowing through energy futures, so it doesn’t take much to flow into or out of our market to have an outsized influence on prices. 

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Market Talk Update 03.14.2023

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Market TalkFriday, Mar 1 2024

Oil Futures Are Leading The Energy Complex In A Modest Rally To Begin March Trading

Oil futures are leading the energy complex in a modest rally to begin March trading, with WTI and Brent both up around $1.50/barrel, while refined products are adding around 2 cents in the early going.

RBOB gasoline futures rolled to a summer-grade RVP with the April contract in prompt position this morning. West Coast cash markets are already converted to summer grades, so they’re holding their premiums to futures, while the markets east of the Rockies are now trading at substantial discounts to futures as they move through their remaining winter-cycles over the next 4-6 weeks. The high trade for the April RBOB contract last month was just north of $2.63, which sets the first layer of resistance to a March madness gasoline rally just about 3 cents north of current values.

While gasoline looks somewhat bullish on the charts, and has seasonal factors working in its favor, diesel prices look weak in comparison with prices reaching a 6-week low Thursday before finally finding a bid, and the roll to April futures cut out 3 cents from prompt values. Diesel prices also don’t enjoy the seasonal benefits of gasoline, with a winter-that-wasn’t offering no help for supplemental diesel demand to replace natural gas in the US or Europe.

Speaking of winter weather, the West Coast continues to get the worst of it in 2024, with a casual 10 feet of snow with 100+ mile an hour wind gusts hitting the Sierra Nevada range. While the worst of that winter storm is happening far from the coast, the San Francisco bay area is under a gale warning starting this afternoon.

The wildfires in the Texas panhandle are now the largest in state history, impacting more than 1 million acres of land. The P66 Borger refinery is caught between the blazes, but so far has not reported any operational issues or plans to change operations at the facility. Valero’s McKee refinery is located just 50 miles from Borger, but looks to be far enough north and West to not be threatened by the fires, for now at least.

Mass Exxodus? A Reuters report noted that Exxon had notified its traders that it was cutting their salaries, in another sign that the major’s move back into trading wasn’t going so well. Exxon’s Exodus has already been a bit of a joke for the past few years, and now that the traders are being targeted, don’t be surprised if the cube photos are taken to a new level.

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

Pivotal Week For Price Action
Market TalkThursday, Feb 29 2024

It's Another Mixed Start For Energy Futures This Morning After Refined Products Saw Some Heavy Selling Wednesday

It's another mixed start for energy futures this morning after refined products saw some heavy selling Wednesday. Both gasoline and diesel prices dropped 7.5-8.5 cents yesterday despite a rather mundane inventory report. The larger-than-expected build in crude oil inventories (+4.2 million barrels) was the only headline value of note, netting WTI futures a paltry 6-cent per barrel gain on the day.

The energy markets seem to be holding their breath for this morning’s release of the Personal Consumption Expenditures (PCE) data from the Bureau of Economic Analysis (BEA). The price index is the Fed’s preferred inflation monitor and has the potential to impact how the central bank moves forward with interest rates.

Nationwide refinery runs are still below their 5-year average with utilization across all PADDs well below 90%. While PADD 3 production crossed its 5-year average, it’s important to note that measure includes the “Snovid” shutdown of 2021 and throughput is still below the previous two years with utilization at 81%.

We will have to wait until next week to see if the FCC and SRU shutdowns at Flint Hills’ Corpus Christi refinery will have a material impact on the regions refining totals. Detail on the filing can be found on the Texas Commission on Environmental Quality website.

Update: the PCE data shows a decrease in US inflation to 2.4%, increasing the likelihood of a rate cut later this year. Energy futures continue drifting, unfazed.

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

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