Production Doubts Overshadow Recession Concerns as Refined Products' Rally Continues

Market TalkFriday, Jan 20 2023
Pivotal Week For Price Action

After a 1 day break, energy prices resumed their rally Thursday, with strong gains that have continued on into Friday’s trading.  For the moment, it appears that a variety of refinery concerns are outweighing the recession fears that had cropped up mid-week.   From a chart perspective, this quick recovery puts both gasoline and diesel in a position to see more strong gains in the weeks ahead. 

The nationwide protest in France over a change to increase the retirement age from 62 to 64 before workers are eligible for their state pension was estimated to surpass 1.1 million people Thursday, and halted fuel deliveries from at least 3 refineries.  While the price reaction was delayed somewhat, it does seem like it was a key contributor to the strong rally that pulled both RBOB and ULSD futures to new highs for January, and opening the door to another 20-30 cents of upside on the charts.

If all you do is look at where US fuel inventories are to start the year in the charts from the DOE’s weekly report below, it’s easy to understand why prices have been rallying for 9 out of the past 10 days, as most regions have far less supply of gasoline and diesel than they normally do to start a year.  While demand remains average at best, it is improving quickly as we move out of the worst 2 weeks of the year, and refinery runs are still far below normal due to the numerous weather-related disruptions over the past month. 

If you’re looking for a silver lining in the low refinery output figures, it may be that it’s allowing crude oil inventories to recover, even though the SPR releases have come to an end.  Then again, you can’t put crude oil in your vehicles, so that’s not particularly helpful for consumers.  Exports remain at above-average levels for refined products and crude oil, as facilities on the Gulf & East Coasts have no shortage of buyers in the Atlantic basin, while producers on the West Coast are being incentivized to send barrels overseas to avoid the spreading environmental taxes on their products.

Caveat Emptor:  The new owners of the beleaguered refinery FKA Hovensa may be wanting a do-over after a judge ruled they must stand as co-defendants in environmental claims for the variety of toxic mishaps that occurred on the prior owner’s watch.  If there weren’t already enough nails in that facilities coffin to keep it from having a meaningful impact on Atlantic basin refinery capacity, add this as one more. 

Motiva, AKA Aramco, reported an upset on an FCC unit at its refinery Thursday.  While it’s unclear if that unit or others were forced to reduce rates because of that upset, the timing of the report also coincided with the building momentum in refined product prices.  

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

Market Talk Update 01.20.2023

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Pivotal Week For Price Action
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