Pivotal Price Action Over The Next Week

Market TalkFriday, May 21 2021
Pivotal Week For Price Action

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.

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Pivotal Week For Price Action
Pivotal Week For Price Action
Market TalkWednesday, Nov 29 2023

The API Reported Gasoline Inventories Dropped By 898,000 Barrels Last Week

Gasoline and oil prices are attempting to rally for a 2nd straight day, a day ahead of the delayed OPEC meeting, while diesel prices are slipping back into the red following Tuesday’s strong showing. 

The API reported gasoline inventories dropped by 898,000 barrels last week, crude inventories declined by 817,000 barrels while distillates saw an increase of 2.8 million barrels. Those inventory stats help explain the early increases for RBOB and WTI while ULSD is trading lower. The DOE’s weekly report is due out at its normal time this morning. 

A severe storm on the Black Sea is disrupting roughly 2% of the world’s daily oil output and is getting some credit for the bounce in futures, although early reports suggest that this will be a short-lived event. 

Chevron reported that its Richmond CA refinery was back online after a power outage Monday night. San Francisco spot diesel basis values rallied more than a dime Tuesday after a big drop on Monday following the news of that refinery being knocked offline.

Just a few days after Scotland’s only refinery announced it would close in 2025, Exxon touted its newest refinery expansion project in the UK Tuesday, with a video detailing how it was ramping up diesel production to reduce imports and possibly allow for SAF production down the road at its Fawley facility. 

Ethanol prices continue to slump this week, reaching a 2-year low despite the bounce in gasoline prices as corn values dropped to a 3-year low, and the White House appears to be delaying efforts to shift to E15 in an election year. 

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

Pivotal Week For Price Action
Market TalkTuesday, Nov 28 2023

Values For Space On Colonial’s Main Gasoline Line Continue To Drop This Week

The petroleum complex continues to search for a price floor with relatively quiet price action this week suggesting some traders are going to wait and see what OPEC and Friends can decide on at their meeting Thursday. 

Values for space on Colonial’s main gasoline line continue to drop this week, with trades below 10 cents/gallon after reaching a high north of 18-cents earlier in the month. Softer gasoline prices in New York seems to be driving the slide as the 2 regional refiners who had been down for extended maintenance both return to service. Diesel linespace values continue to hold north of 17-cents/gallon as East Coast stocks are holding at the low end of their seasonal range while Gulf Coast inventories are holding at average levels.

Reversal coming?  Yesterday we saw basis values for San Francisco spot diesel plummet to the lowest levels of the year, but then overnight the Chevron refinery in Richmond was forced to shut several units due to a power outage which could cause those differentials to quickly find a bid if the supplier is forced to become a buyer to replace that output.

Money managers continued to reduce the net length held in crude oil contracts, with both Brent and WTI seeing long liquidation and new short positions added last week. Perhaps most notable from the weekly COT report data is that funds are continuing their counter-seasonal bets on higher gasoline prices. The net length held by large speculators for RBOB is now at its highest level since Labor Day, at a time of year when prices tend to drop due to seasonal demand weakness. 

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