Quiet Start For The Most Important Weeks Of The Year

Market TalkMonday, Jul 29 2019
Energy Prices Treading Water

It’s a quiet start for what could be one of the most important weeks of the year for financial markets. Energy prices are treading water as we await news on US-China trade talks, and the FOMC’s first interest rate cut in years. There were no new developments in the Strait of Hormuz over the weekend, letting energy traders sit back and watch how the other big stories will play out before making a move.

Baker Hughes reported a decline of 3 oil rigs drilling in the US last week, marking a 4th consecutive week of reduced drilling activity. The rig count has dropped in each month so far this year as producers continue to struggle with profitability, even as prices have rebounded. One interesting note in this week’s count: The Permian basin has more than half of the active drilling rigs in the country, and has been leading the declines for most of the year but actually increased by 3 rigs last week.

Money managers that jumped into long bets on energy prices ahead of Hurricane Barry two weeks ago look to have bailed out in the last commitment of traders reports. The large speculative category of trader saw large declines in almost all contracts last week, with European distillates the only one to see a net increase in net length held by money managers.

A Reuters article this morning highlights the challenging environment for ethanol producers in the US. The chart below shows that margins for producing ethanol from Corn have held in negative territory for most of the year. No surprise here, renewable fuel producers are blaming small refinery exemptions from the RFS for their woes, while refining groups suggest they’re not to blame.

It’s not just ethanol producers that are struggling. 2 more biodiesel plants have announced they will be shutting their doors this month, with the lack of a $1/gallon blenders credit making them unprofitable. The latest spending bill moving through congress does not include the tax extenders package that would reinstate that credit, along with the federal oil spill fee.

We are still more than a month away from the peak of hurricane season, but another system will need to be watched this week. Currently the NHC is only giving a 20% chance of development for a storm system that could heads towards Florida. Given that most terminals in Florida seem to be oversupplied with fuel currently, it seems less likely there will be much disruption even if this system does turn into a storm.

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Pivotal Week For Price Action
Pivotal Week For Price Action
Market TalkWednesday, Mar 27 2024

Most Energy Contracts Are Ticking Lower For A 2nd Day After A Trickle Of Selling Picked Up Steam Tuesday

Most energy contracts are ticking lower for a 2nd day after a trickle of selling picked up steam Tuesday. ULSD futures are down a dime from Monday’s highs and RBOB futures are down 7 cents.

Diesel prices continue to look like the weak link in the energy chain, with futures coming within 1 point of their March lows overnight, setting up a test of the December lows around $2.48 if that resistance breaks down. Despite yesterday’s slide, RBOB futures still look bullish on the weekly charts, with a run towards the $3 mark still looking like a strong possibility in the next month or so.

The API reported crude stocks increased by more than 9 million barrels last week, while distillates were up 531,000 and gasoline stocks continued their seasonal decline falling by 4.4 million barrels. The DOE’s weekly report is due out at its normal time this morning.

RIN values have recovered to their highest levels in 2 months around $.59/RIN for D4 and D6 RINs, even though the recovery rally in corn and soybean prices that had helped lift prices off of the 4 year lows set in February has stalled out. Expectations for more biofuel production to be shut in due to weak economics with lower subsidy values seems to be encouraging the tick higher in recent weeks, although prices are still about $1/RIN lower than this time last year.

Reminder that Friday is one of only 3 annual holidays in which the Nymex is completely shut, so no prices will be published, but it’s not a federal holiday in the US so banks will be open.

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Pivotal Week For Price Action
Market TalkTuesday, Mar 26 2024

Refined Products Seeing Small Losses Of Around A Penny While Crude Oil Contracts Hover Just Above Break Even

Energy futures are taking a breather to start Tuesday’s trading, with refined products seeing small losses of around a penny while crude oil contracts hover just above break even.

No new news on either the Red Sea shipping or Russian Refining attacks this morning, so Cocoa prices seem to be taking over the commodity headlines while energy markets wait on their next big move.

RBOB gasoline futures set a new 6-month high Monday at $2.7711, which leaves the door open on the weekly charts for the spring rally to continue. A run at the $3 mark is certainly possible in the next few weeks before the typical seasonal price peak is set just before the start of driving season.

A container ship lost power and crashed into the Francis Scott Key bridge in Baltimore this morning, causing a devastating collapse. While cargo shipping into the area will no doubt be impacted by this event, fuel supplies are unlikely to see any notable change since the 9 fuel terminals in Baltimore are primarily supplied by Colonial pipeline. Barges from Philadelphia refineries do supplement Baltimore supplies at times, and those vessel flows will be impacted at least until rescue operations are completed and the bridge sections removed from the waterway. That said, since shipping up from the Gulf Coast via Colonial is generally cheaper than shipping an NY Harbor-priced barrel south, the amount of supply disrupted by this event will be minimal.

While we’re still waiting on the official forecasts for the Atlantic Hurricane season, early reports continue to suggest that we could be in for a very busy year due to warm water temperatures and a forming La Nina pattern.

Dallas meanwhile is preparing for a different sort of disruption, with city officials encouraging companies to let employees work from home during the solar eclipse on April 8th as metroplex traffic is expected to surge. While some isolated fuel outages are certainly possible if people start panic buying gasoline they don’t need, there’s no reason to expect any widespread impact from the demand spike.

Today’s interesting read: Why AI requires a staggering amount of electricity and may create supply competition for EVs that will end up benefitting fossil fuels.

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