Pullback In Prices After Euphoric Monday Gains

Market TalkTuesday, Nov 10 2020
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Energy prices are moving higher for a second day, but are trading below where they were this time yesterday when the runaway vaccine rally was in full force. The pullback in prices Monday afternoon seemed to follow the lead of U.S. equity markets that  gave back most of their euphoric gains from early Monday morning, as the reality of logistics and timing with the new vaccine started to set in. The high water marks from the early run up set the near-term resistance layers that will determine if we see a strong November rally in prices, or just a return to the sideways shuffle that’s been going on since June.

Physical gasoline markets were less enthusiastic Monday, with basis values across most U.S. spot markets sliding and offsetting some of the big gains in RBOB futures. The reality seems to be that the seasonal demand slowdown is already upon us, and any pickup in demand from a vaccine isn’t likely to start until next year. 

Physical diesel markets on the other hand continued to see stronger basis values that sent cash prices in most markets to their highest levels since August, while West Coast values reached their highest levels since March. Midwestern basis continues to strengthen – Group 3 prompt bases values reached their highest levels in more than a year – as the end of a strong harvest season has helped inventories decline rapidly.  

Tropical Storm Eta is back over open water in the Gulf of Mexico after lashing south Florida with heavy rain over the weekend. The latest forecasts have it heading towards the Florida Panhandle this weekend, but AL, MS an Eastern LA are still in the forecast cone, which brings several refineries into its potential path. The good news is that even though this storm could again reach hurricane strength over open water this week, it’s  expected to lose strength as it approaches land for the fourth time in its long and winding path. With winds dropping into the 35 mph range there should be minimal damage, but heavy rains and power outages will still be a concern.

Tropical Storm Theta set the all-time record for named storms in a single season at 29 when it formed in the open Atlantic overnight. That storm is heading east towards Portugal and will not threaten the U.S. 

Meanwhile, another tropical wave is given 70% odds of developing into the 30th named storm of the year  over the next five days. As we have seen already this year with hurricanes Delta, Zeta and Eta, the warm Caribbean waters can spark rapid development once these storm systems get organized. 

RIN values continue to rally, with both D4 and D6 values pulling near three-year highs as the expected administration change looks more friendly to renewables than refiners. Specifically it’s expected that the new EPA administers are less likely to push small refiner exemptions, meaning more demand for RINs (assuming those small refiners aren’t forced to close their doors). 

The latest in the rapidly changed refinery landscape:  Shell announced more capacity reductions at its facilities in Singapore.  Delek laid off workers and is deferring maintenance work at its Krotz Spring plant to 2021, and BP announced a new hydrogen project at the Lingen refinery in Germany.  That project aims to produce hydrogen from water using electrolysis, and replace some of the natural gas based hydrogen that’s produced at the plant currently.

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Pivotal Week For Price Action
Market TalkFriday, Feb 23 2024

The DOE Report Sparked A Solid Rally In Energy Futures Thursday, But That Upward Momentum Proved Short-Lived

The DOE report sparked a solid rally in energy futures Thursday, but that upward momentum proved short-lived as prices gave back those gains overnight, despite US equity markets surging to all-time highs.

The weekly inventory report showed US refiners are struggling to come back online from a busy maintenance season that was further complicated by January’s cold snap and the unexpected shut down at BP Whiting. Refinery utilization held near 80% on the week, which helped pull gasoline inventories lower despite sluggish demand and a surge in imports along the East Coast. Diesel demand showed a big recovery from last week’s ugly estimate, and when you factor in the missing 4-5% that doesn’t show up due to RD not being included in the reports, actual consumption looks much healthier than the report suggests.

Based on reports of restarts at several major refineries this week, we should see those utilization numbers pick up in next week’s report.

The EPA Thursday approved year-round E15 sales in 8 corn-growing states, despite the fact that the extra ethanol blends have been shown more to pollute more in the warm times of the year. The effective date was pushed back a year however in a show of election-year tight rope walking, which the EPA couched as ensuring that the move wouldn’t lead to a spike in fuel prices this summer.

Of course, the law of unintended consequences may soon be at play in a region that tends to be long gasoline supply for large parts of the year. Removing 5% of the gasoline demand could be another nail in some of the smaller/less complex refineries’ coffins, which would of course make fuel supply less secure, which contradicts one of the main arguments for making more 198 proof grain alcohol and selling it as fuel. Ethanol prices meanwhile continue to slump to multi-year lows this week as low corn prices continue to push unusually high production, and the delayed effective date of this ruling won’t help that.

While Nvidia’s chip mania is getting much of the credit for the surge in equity prices this week, there was also good news for many more companies in reports that the SEC was planning to drop its requirements on Scope 3 emissions reporting which is particularly useful since most people still can’t figure out what exactly scope 3 emissions really are.

In today’s segment of you can’t make this stuff up: The case of chivalry gone wrong with the BP/TA acquisition, and a ketchup caddy company caught spoofing electric capacity.


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
Pivotal Week For Price Action
Market TalkThursday, Feb 22 2024

RBOB And ULSD Futures Down Around 2.5 Cents After A Mixed Performance Wednesday

Refined products are leading the energy complex lower to start Thursday’s trading with both RBOB and ULSD futures down around 2.5 cents after a mixed performance Wednesday.

The API reported another large build in crude oil inventories last week, with inventories up more than 7 million barrels while gasoline inventories increased by 415,000 barrels and diesel stocks dropped by 2.9 million. The crude oil build was no doubt aided once again by the shutdown of BP’s Whiting refinery that takes nearly ½ million barrels/day of oil demand out of the market. That facility is said to be ramping up operations this week, while full run rates aren’t expected again until March. The DOE’s weekly report will be out at 11am eastern this morning.

Too much or not enough? Tuesday there were reports that the KM pipeline system in California was forced to shut down two-line segments and cut batches in a third due to a lack of storage capacity as heavy rains have sapped demand in the region. Wednesday there were new reports that some products ran out of renewable diesel because of those pipeline delays, bringing back memories of the early COVID lockdown days when an excess of gasoline caused numerous outages of diesel.

The Panama Canal Authority has announced $8.5 billion in sustainability investments planned for the next 5 years. Most of those funds are aimed at sustainability efforts like modernizing equipment and installing solar panels, while around $2 billion is intended for a better water management system to combat the challenges they’ve faced with lower water levels restricting transit by 50% or more in the past year. More importantly in the near term, forecasts for the end of the El Nino pattern that contributed to a record drought, and the beginning of a La Nina pattern that tends to bring more rain to the region are expected to help improve water levels starting this summer.

The bad news is that La Nina pattern, coupled with historically warm water temperature has Accuweather forecasters sounding “Alarm Bells” over a “supercharged” hurricane season this year. Other years with a similar La Nina were 2005 which produced Katrina, Rita and Wilma and 2020 when we ran out of names, and the gulf Coast was repeatedly pummeled but markets didn’t react much due to the COVID demand slump. Perhaps most concerning for the refining industry is that unlike the past couple of years when Florida had the bullseye, the Texas coast is forecast to be at higher risk this year.

RIN prices continued their slide Wednesday morning, trading down to 38 cents/RIN before finally finding a bid that pushed values back to the 41-42 cent range by the end of the day.

The huge slide in RIN values showed up as a benefit in Suncor’s Q4 earnings report this morning, as the Renewable Volume Obligation for the company dropped to $4.75/barrel vs $8.55/barrel in Q4 of 2022. Based on the continued drop so far in 2024, expect that obligation to be nearly cut in half again. Suncor continued the trend of pretty much every other refiner this quarter, showing a dramatic drop in margins from the record-setting levels in 2022, but unlike a few of its counterparts over the past week was able to maintain positive earnings. The company noted an increase in refining runs after recovering from the Christmas Eve blizzard in 2022 that took down its Denver facility for months but did not mention any of the environmental challenges that facility is facing.

Valero’s McKee refinery reported a flaring event Wednesday that impacted multiple unites and lasted almost 24 hours. Meanwhile, Total reported more flaring at its Pt Arthur facility as that plant continues to struggle through restart after being knocked offline by the January deep freeze.

Speaking of which, the US Chemical Safety board released an update on its investigation into the fire at Marathon’s Martinez CA renewable diesel plant last November, noting how the complications of start -up leave refineries of all types vulnerable.

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