Production Cuts From Saudi Arabia And Russia Are Getting Much Of The Credit For The Continued Rally In Oil Prices

Market TalkFriday, Sep 15 2023
Pivotal Week For Price Action

Refined product prices are sliding to start Friday’s session after reaching new multi-month highs Thursday, while oil prices are clinging to modest gains near their highest prices of the year.      

Self-fulfilling prophecy: Production cuts from Saudi Arabia and Russia are getting much of the credit for the continued rally in oil prices, even though increased exports from Iran and other OPEC members are reducing the impact of those reductions. Perhaps more importantly, the announced production cuts seem to be encouraging money managers that had sat on the sidelines of the energy market for most of last year to jump back in, which seems to be a major contributor in the recent run-up in prices. We’ll get another look at the weekly CFTC commitments of traders report later this afternoon to confirm (or dispel) that theory.

Basis values are becoming noteworthy again with California gasoline values going through another September surge following 2 more reported refinery hiccups Thursday, which makes supplies of the dwindling 6lb RVP gasoline become even more scarce. LA spot values jumped to a $1.20/gallon premium to futures yesterday, which is both impressive and still half of the premium we saw this time last year. 

On the diesel side, there’s a huge difference for ULSD on the west coast vs the Chicago market this morning, with values in California going for 55-65 cents over futures, while Chicago-land ULSD is trading near a 50 cent/gallon discount.

RIN prices continue to come under pressure, with D4 (Bio/RD) values reaching an 18-month low in the mid $1.20s Thursday, while D6 (ethanol) values are following along, essentially pegged to the D4s given that the D4s can be used in place of D6 RINs for compliance purposes. 

Hurricane Lee made another favorable small shift to the east in its forecast path, moving the center of the storm further away from the coast of New England, and Irving’s refinery in St. John NB. It’s worth noting that the European models still have this storm hitting very close to the refinery, while the GFS (US) model hits Nova Scotia, and the difference between the two is likely to be meaningful in terms of the potential disruption to that facility. The storm also seems to be moving ahead faster than previous estimates, which should help vessel traffic resume operations almost 12 hours faster than it appeared just a day ago. That’s the good news. The bad news is that Nigel is about to be named and is on a very similar path to Lee, meaning suppliers along the east coast will still have to contend with shipping delays and the terminal allocations or runouts that come with them for at least another week.

Can’t catch a break: The beleaguered refinery in Texas City, which is the 4th largest in the US, and was renamed “Galveston Bay” several years ago in an effort to rebrand the plants image after numerous deadly fires, reported yet another upset yesterday, this time in a hydro treating unit that was caused by a loss of power. The facility is still trying to recover from another fire that hit an FCC unit a week ago, and to finish repairs from a deadly fire in May.  

Meanwhile, China’s refinery output reached a record high in August as the new capacity that’s been built in recent years comes online just in time to take advantage of the robust diesel market. 

Mexico’s energy minister told local media that the new Dos Bocas refinery that’s been years late and several billion dollars short will be producing at full capacity (around 340mb/day) by the end of the year. IF that facility comes online fully, it will displace a large amount of imports from the US, which is the stated goal of Mexico’s President. Place your bets.  

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Market Talk Update 09.15.2023

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Market TalkFriday, Apr 19 2024

Gasoline Futures Are Leading The Way Lower This Morning

It was a volatile night for markets around the world as Israel reportedly launched a direct strike against Iran. Many global markets, from equities to currencies to commodities saw big swings as traders initially braced for the worst, then reversed course rapidly once Iran indicated that it was not planning to retaliate. Refined products spiked following the initial reports, with ULSD futures up 11 cents and RBOB up 7 at their highest, only to reverse to losses this morning. Equities saw similar moves in reverse overnight as a flight to safety trade soon gave way to a sigh of relief recovery.

Gasoline futures are leading the way lower this morning, adding to the argument that we may have seen the spring peak in prices a week ago, unless some actual disruption pops up in the coming weeks. The longer term up-trend is still intact and sets a near-term target to the downside roughly 9 cents below current values. ULSD meanwhile is just a nickel away from setting new lows for the year, which would open up a technical trap door for prices to slide another 30 cents as we move towards summer.

A Reuters report this morning suggests that the EPA is ready to announce another temporary waiver of smog-prevention rules that will allow E15 sales this summer as political winds continue to prove stronger than any legitimate environmental agenda. RIN prices had stabilized around 45 cents/RIN for D4 and D6 credits this week and are already trading a penny lower following this report.

Delek’s Big Spring refinery reported maintenance on an FCC unit that would require 3 days of work. That facility, along with several others across TX, have had numerous issues ever since the deep freeze events in 2021 and 2024 did widespread damage. Meanwhile, overnight storms across the Midwest caused at least one terminal to be knocked offline in the St. Louis area, but so far no refinery upsets have been reported.

Meanwhile, in Russia: Refiners are apparently installing anti-drone nets to protect their facilities since apparently their sling shots stopped working.

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

Pivotal Week For Price Action
Market TalkThursday, Apr 18 2024

The Sell-Off Continues In Energy Markets, RBOB Gasoline Futures Are Now Down Nearly 13 Cents In The Past Two Days

The sell-off continues in energy markets. RBOB gasoline futures are now down nearly 13 cents in the past two days, and have fallen 16 cents from a week ago, leading to questions about whether or not we’ve seen the seasonal peak in gasoline prices. ULSD futures are also coming under heavy selling pressure, dropping 15 cents so far this week and are trading at their lowest level since January 3rd.

The drop on the weekly chart certainly takes away the upside momentum for gasoline that still favored a run at the $3 mark just a few days ago, but the longer term up-trend that helped propel a 90-cent increase since mid-December is still intact as long as prices stay above the $2.60 mark for the next week. If diesel prices break below $2.50 there’s a strong possibility that we see another 30 cent price drop in the next couple of weeks.

An unwind of long positions after Iran’s attack on Israel was swatted out of the sky without further escalation (so far anyway) and reports that Russia is resuming refinery runs, both seeming to be contributing factors to the sharp pullback in prices.

Along with the uncertainty about where the next attacks may or may not occur, and if they will have any meaningful impact on supply, come no shortage of rumors about potential SPR releases or how OPEC might respond to the crisis. The only thing that’s certain at this point, is that there’s much more spare capacity for both oil production and refining now than there was 2 years ago, which seems to be helping keep a lid on prices despite so much tension.

In addition, for those that remember the chaos in oil markets 50 years ago sparked by similar events in and around Israel, read this note from the NY Times on why things are different this time around.

The DOE’s weekly status report was largely ignored in the midst of the big sell-off Wednesday, with few noteworthy items in the report.

Diesel demand did see a strong recovery from last week’s throwaway figure that proves the vulnerability of the weekly estimates, particularly the week after a holiday, but that did nothing to slow the sell-off in ULSD futures.

Perhaps the biggest next of the week was that the agency made its seasonal changes to nameplate refining capacity as facilities emerged from their spring maintenance.

PADD 2 saw an increase of 36mb/day, and PADD 3 increased by 72mb/day, both of which set new records for regional capacity. PADD 5 meanwhile continued its slow-motion decline, losing another 30mb/day of capacity as California’s war of attrition against the industry continues. It’s worth noting that given the glacial pace of EIA reporting on the topic, we’re unlikely to see the impact of Rodeo’s conversion in the official numbers until next year.

Speaking of which, if you believe the PADD 5 diesel chart below that suggests the region is running out of the fuel, when in fact there’s an excess in most local markets, you haven’t been paying attention. Gasoline inventories on the West Coast however do appear consistent with reality as less refining output and a lack of resupply options both continue to create headaches for suppliers.

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

Pivotal Week For Price Action