Prices Drop In Wake Of Violence

Market TalkThursday, Jan 9 2020
Week 44 - US DOE Inventory Recap

In the wake of Iranian missile attacks on U.S. troops in Iraq, Tuesday nights’ eight cent gains for refined products quickly turned into losses once it appeared that no return fire was coming. Some bearish stats from the DOE report added to the selling, and when the dust settled, we ended up with the largest intra-day price drop for futures since 2011.

The collapse in the wake of a new level of violence was certainly surprising to many, but might be best summarized as a 'buy the rumor, sell the news' phenomenon after months of saber rattling turned into a non-event, and those longs that had been building in anticipation of the inevitable U.S./Iran showdown may have decided to head for the exits. Unfortunately we won’t see the CFTC COT report that includes Wednesday’s activity until Friday, January 15, and there’s plenty that could happen in the meantime to know for sure who was behind the meltdown.

Of course the question after a day like Wednesday is: where do we go from here? From a chart perspective, the outside down reversal pattern caused by the big head fake is definitely a bearish signal. The move also wiped out the near term chart support around $1.70 for RBOB and $2.00 for ULSD, which sets up a test of the lower end of the winter ranges some four to five cents below current values. With little fundamentally to push prices up this time of year (with warmer than normal weather), it looks like the path of least resistance is lower for the next week or two.

The first DOE inventory report of the year painted a gloomy picture for U.S. energy producers, with inventories building even more than normal for this time of year, while demand estimates are sluggish at best.

Total U.S. petroleum consumption is holding near its previous five year average, but well below the first week of January in 2018 and 2019. The weekly consumption estimates are notoriously volatile for a number of reasons, and the timing of the holiday season no doubt plays a part, so it’s not panic time yet for refiners, but they’ll likely be holding their breath for a week or two until they see these numbers bounce back.

 Speaking of refiners, yesterday’s report showed a decrease in refinery runs across all five PADDs, which helps to explain some of the strength we’ve seen in Gulf Coast and west coast basis values lately. We expect to see run rates drop over the next four to five weeks as plants do maintenance work ahead of the spring.

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Market TalkWednesday, Jul 17 2024

Energy Markets Are Trying To Find A Price Floor After Gasoline And Crude Oil Staged A Healthy Bounce To Minimize The Heavy Losses

Energy markets are trying to find a price floor after gasoline and crude oil staged a healthy bounce to minimize the heavy losses we saw early in Tuesday’s session. WTI is leading the move higher early Wednesday, up nearly $.90/barrel in the early going, while RBOB prices are up just under a penny.

Diesel continues to look like the weak link in the energy chain both technically and fundamentally. Tuesday the API reported a 4.9 million barrel build in diesel stocks, while gasoline inventories were only up 365,000 barrels, and crude oil stocks declined by more than 4.4 million barrels. The DOE’s weekly report is due out at its normal time this morning and it’s likely we’ll see a reduction in oil output and PADD 3 refining runs thanks to shut ins ahead of Hurricane Beryl, but otherwise the storm appears to be a relative non-issue with only 1 notable refining hiccup, that wasn’t even as bad as a midwestern Thunderstorm.

Chicago basis values rallied Tuesday after reports that Exxon had shut down the 250mb/day Joliet refinery following severe storms that knocked out power to the area Sunday. RBOB differentials surged nearly 9 cents on the day, while diesel diffs jumped more than a nickel. With 3 large refineries in close proximity, the Chicago cash market is notoriously volatile if any of those facilities has an upset. Back in May there was a one-day spike in gasoline basis of more than 50 cents/gallon after Joliet had an operating upset so don’t be surprised if there are bigger swings this week if the facility doesn’t come back online quickly.

Moving in the opposite direction, California basis values are heading the opposite direction with the transition to August scheduling pressuring CARBOB differentials in LA and San Francisco to their biggest discounts to prompt RBOB futures in more than 18 months. Gasoline imports into PADD 5 have held well above average levels over the past 2 months, which has more than offset the loss of the P66 Rodeo refinery’s output after it completed its conversion to RD production, in another sign of how growing refining capacity in China and other Asian countries may become more influential to the US. California regulators may also pat themselves on the back that their new plans to force refineries to report their gross profit monthly, in addition to the rules requiring all bulk trades in the state be reported must be driving the lower gasoline differentials, assuming they figure out what a basis differential is.

Meanwhile, California’s Carbon Allowance values have tumbled to their lowest levels in a year after a CARB presentation last week suggested the agency would be delaying long-anticipated tightening of the Cap and Trade program until 2026.

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

Pivotal Week For Price Action
Market TalkTuesday, Jul 16 2024

The Sell-Off In Energy Markets Continues, With Refined Products Reaching Their Lowest Levels In A Month Early In Tuesday’s Session

The sell-off in energy markets continues, with refined products reaching their lowest levels in a month early in Tuesday’s session. Reports of slowing growth in China, the world’s largest oil purchaser, is getting much of the credit for the slide in prices so far this week, although that doesn’t do much to explain why refined products are outpacing the drop in crude.

ULSD futures are leading the early move lower, trading down a nickel on the day, and marking a 19 cent drop since July 4th. There’s not much in the way of technical support for ULSD, so don’t be surprised if this sell-off continues to pick up steam.

With today’s slide, RBOB futures are down 17 cents from where they were trading on July 4th, and are just a couple of cents from testing their 200-day moving average. Should that support break, it looks like there’s a good chance to test the June lows around $2.29.

Physical markets are not offering any strength to the futures market with all 6 of the major cash markets for diesel across the US trading at a discount to ULSD futures, while only 1 gasoline market is trading at a premium to RBOB futures. That combination of weakness in futures and cash markets is going to be troubling for refiners who are seeing margins reduce during what is traditionally a strong time of year.

The EIA highlighted the energy trade between the US and Mexico in a report Monday, showing that despite so many claims of energy independence from Mexican officials, the actual amount of refined fuels and natural gas bought from the US continues to increase. That’s good news for many US refiners who have become more dependent on Mexican purchases to find a home for their output.

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