Panic Selling Grips Markets Worldwide

Market TalkWednesday, Mar 18 2020
Panic Selling Grips Markets Worldwide

WTI is taking its turn leading the energy markets lower this week, dropping another 15 percent since Monday’s close, and reaching a new 18 year low overnight as the panic selling continues to grip markets around the world.

On a percentage basis, this would be the worst month ever (down 45% so far in March) for WTI futures, which have been trading for nearly 40 years. On a $/barrel basis, this $20/barrel drop is still a long way away from the October 2008 record of a $33/barrel decline.

Gasoline futures were shrugging off the 8 percent drop in crude oil overnight , trading up three cents/gallon after the API reported a seven million barrel decline in U.S. gasoline inventories last week, but have succumbed to the bearish pressure and are now trading modestly lower. Diesel stocks also had a large draw of 3.6 million barrels in the industry estimate, while crude stocks had a small decline of 421,000 barrels. The EIA’s weekly report is due out at its normal time.

While they have a much shorter history than WTI, and a small fraction of the trading volume of their petroleum cousins, ethanol futures have also dropped to a record low this week at $0.94/gallon. Given that fuel ethanol is around 198 proof alcohol, perhaps the excess inventory may find a new life in the hot market for sanitizing products. No word yet on Twitter if that is actually a viable solution to the virus.

Many physical fuel markets around the country are seeing basis values drop this week as traders are hesitant to buy anything with so much uncertainty around demand. The drop in both calendar and basis spreads is beginning to drive up premiums for storage options around the world, whether they be in major pipeline systems, inland terminals, or the vessels at sea turning into floating storage.

Another notable phenomenon this week, it’s not just physical demand that is trending lower. Trading volumes in the major petroleum contracts have been dropping daily since the March 9 price plunge. This could be due to the extreme volatility forcing some trading programs to the sidelines to avoid being run-over. That lack of volume is a technical signal of low conviction which can be a sign that this trend is approaching its end. That said, low volume can also mean greater volatility since anyone needing to trade a large position will create bigger price movements than normal, so don’t expect these markets to calm down for a while.

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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