Pivotal Price Action Over The Next Week
After two days of heavy selling, energy prices are trying to bounce to start Friday’s session. A break in the risk-off selling seems to be at hand as U.S. equity futures are also pointing higher this morning after a rough week. The price action over the next week looks like it could be pivotal long term as refined product futures are testing the bullish trend lines on their weekly charts, and a break lower will make today’s rally look like a dead cat bounce with another 20 cents of downside to come, while a hold above current levels leaves the door open to testing new highs for the year in June.
More reports that Iran was close to an agreement to lift sanctions (which IF true could bring another 500,000-2 million barrels/day of oil back onto the world market within the year) earned some of the credit for the latest wave of selling Thursday. That announcement was not confirmed by U.S. officials however, and coincidentally came around the same time that a ceasefire in Gaza was announced, which so far has put a stop to the rockets Iran helped build from being fired into Israel.
Hurricane season doesn’t officially start for another week, but already there are two potential storm systems being tracked. The first near Bermuda (which would be named Ana) is unlikely to threaten the U.S., but the second in the Gulf of Mexico could briefly reach tropical storm strength and bring more heavy rain and wind to the Gulf Coast that’s been battered by storms all week, causing several refinery units to be knocked offline.
NOAA is predicting another above-average year for storm activity in the Atlantic basin, with 13-20 named storms, 3-5 of which could be major hurricanes. Given the recent increase in storm activity, the agency is also increasing the “average” number of storms in a year from 12 to 14. That’s not as many as the record setting season we saw last year, but of course it only takes one to cause a major supply disruption since half of the country’s refining capacity sits on the gulf coast, and the region is more vulnerable now due to the saturation that’s occurred this week.
RIN prices joined the selloff in fuel and grain prices Thursday, with reports that the EPA was planning to hold renewable obligations for 2021 and 2022 unchanged due to the COVID-inspired drop in total fuel demand adding to the negative sentiment. As the chart below shows however, the nickel drop in prices this week barely registers on the chart after a 60 cent rally in the past month, and buyers still seem eager to step in whenever there’s a dip.
Who is running the show? On the same day the president made an executive order instructing government agencies to review climate change impacts, a partisan feud between FERC commissioners is leaving pipeline project approvals in the lurch. The FERC situation is eerily similar to the strange reaction by the FTC commissioner last week, when they tried to claim the Speedway sale might be illegal, after it had already gone through.
A new bill proposed in congress Thursday would create a blenders tax credit of $1.50-$2/gallon for sustainable aviation fuel (SAF). The bill is widely supported by the industry, with over 60 organizations showing support for the bill. One interesting note on the bill is that it specifically excludes fuels made from palm fatty acids, which have become a highly controversial “renewable” fuel since they arguably do more harm to the environment than traditional fuels, which is an argument the ethanol lobby will not enjoy if it spreads to other programs as well.
Click here to download a PDF of today's TACenergy Market Talk.
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View AllEnergy 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.
Week 23 - US DOE Inventory Recap
Energy Prices Retreat, Global Demand Concerns Loom
So much for that rally. Energy prices have given back all of the gains made following Saudi Arabia’s announcement that it would voluntarily withhold another 1 million barrels/day of oil production starting in July. The pullback appears to be rooted in the ongoing concerns over global demand after a soft PMI report for May while markets start to focus on what the FED will do at its FOMC meeting next week.
The lack of follow through to the upside leaves petroleum futures stuck in neutral technical territory, and since the top end of the recent trading range didn’t break, it seems likely we could see another test of the lower end of the range in the near future.
RIN prices have dropped sharply in the past few sessions, with traders apparently not waiting on the EPA’s final RFS ruling – due in a week – to liquidate positions. D6 values dropped to their lowest levels in a year Monday, while D4 values hit a 15-month low. In unrelated news, the DOE’s attempt to turn seaweed into biofuels has run into a whale problem.
Valero reported a process leak at its Three Rivers TX refinery that lasted a fully 24 hours. That’s the latest in a string of upsets for south Texas refineries over the past month that have kept supplies from San Antonio, Austin and DFW tighter than normal. Citgo Corpus Christi also reported an upset over the weekend at a sulfur recovery unit. Several Corpus facilities have been reporting issues since widespread power outages knocked all of the local plants offline last month.
Meanwhile, the Marathon Galveston Bay (FKA Texas City) refinery had another issue over the weekend as an oil movement line was found to be leaking underground but does not appear to have impacted refining operations at the facility. Gulf Coast traders don’t seem concerned by any of the latest refinery issues, with basis values holding steady to start the week.
Click here to download a PDF of today's TACenergy Market Talk.