RBOB Gasoline Futures Touched Their Lowest Level Of The Year Overnight While ULSD And Crude Oil Prices Hit 3-Month Lows

Market TalkWednesday, Nov 8 2023
Pivotal Week For Price Action

RBOB gasoline futures touched their lowest level of the year overnight while ULSD and crude oil prices hit 3-month lows. A combination of weak technical factors and demand concerns seem to be driving the move lower, even as stock markets continue their recent run higher on hopes that the interest rate hikes are finished. A stronger dollar is also getting credit for the slide in energy prices by some media outlets, even though the correlation between the asset classes has actually been positive over the past 30 days.

The last time we saw ULSD test its 200-day moving average, just over a month ago, prices bottomed out at $2.83 and rallied 42 cents over the next 10 days. This time, that support layer offered little more than a speed bump on the move lower, and a technical trapdoor seems to have opened once the descending triangle pattern was completed. Longer term, the charts suggest this breakdown could send prices back below $2.50 where we saw them bottom out last spring, although near term the contracts are begging for a corrective bounce after prices dropped 27 cents from Friday’s high.

RBOB seems to be facing a similar test around the $2.15 range today, but so far are managing to hold just above that level, which looks like the pivot point on the charts that will determine whether or not gasoline futures make a run at sub $2 levels by year end. Note that Gulf Coast spot values for gasoline are already trading below the $2 mark, and the big spread between Gulf and East coast values has values for Colonial pipeline space holding north of $.10/gallon.

Buying it, not buying it:  While the big drop in diesel futures is capturing the headlines, 2 of the country’s more volatile spot markets are seeing basis values rally sharply to keep cash prices moving higher this week. Chicago ULSD Basis had gone from worst to first in November with a 50-cent rally from a 30-cent discount to a 20-cent premium following a pair of rumored-but-unconfirmed refinery upsets in Illinois. Not to be outdone however, LA CARB diesel basis jumped to a 30-cent premium this week, following October’s 60 cent collapse. LA CARBOB basis values also rallied, and local allocations have been restricted suggesting a local refinery had a disruption although nothing yet has been reported to the AQMD. Meanwhile, Chevron’s El Segundo refinery in LA was reported to start up its new either-or Hydro treater unit that will allow the facility to produce either traditional or renewable diesel, expanding that plant’s co-processing capacity. 

The API reported a huge build in crude oil stocks last week above 11 million barrels, while distillates increase by 1 million barrels, and gasoline stocks dropped by 400,000. The EIA’s weekly status report will not be released this week due to a system upgrade. You might keep an eye on futures at the 9:30am Eastern time anyway just to see if any trading programs weren’t updated and still try to react to the non-existent report.

Go ahead and take a few weeks off: Accuweather forecasters declared an end to the Atlantic Hurricane season 3 weeks early, saying that the US won’t see any impacts from a storm this year. The season was quite active, and several huge storms formed, but most of the country – and the energy supply network – avoided any major issues thanks to favorable steering currents that kept most of the storms off-shore and out of the Gulf of Mexico.  

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Market Talk Update 11.08.2023

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Market TalkFriday, Dec 1 2023

“Buy The Rumor, Sell The News” Seems To Be The Trading Pattern Of The Week

“Buy the Rumor, Sell the News” seems to be the trading pattern of the week as oil and refined products dropped sharply Thursday after OPEC & Friends announced another round of output cuts for the first quarter of next year. 

Part of the reason for the decline following that report is that it appears that the cartel wasn’t able to reach an official agreement on the plan for next year, prompting those that could volunteer their own production cuts without forcing restrictions on others. In addition, OPEC members not named Saudi Arabia are notorious for exceeding official quotas when they are able to, and Russia appears to be (surprise) playing games by announcing a cut that is made up of both crude oil and refined products, which are already restricted and thus allow an incremental increase of exports. 

Diesel futures are leading the way lower this morning, following a 13-cent drop from their morning highs Thursday, and came within 3-cents of a new 4-month low overnight. The prompt contract did leave a gap on the chart due to the backwardation between December and January contracts, which cut out another nickel from up front values.

Gasoline futures meanwhile are down 15-cents from yesterday’s pre-OPEC highs and are just 7-cents away from reaching a new 1-year low.  

Cash markets across most of the country are looking soft as they often do this time of year, with double digit discounts to futures becoming the rule across the Gulf Coast and Mid Continent. The West Coast is mixed with diesel prices seeing big discounts in San Francisco, despite multiple refinery upsets this week, while LA clings to small premiums. 

Ethanol prices continue to hold near multi-year lows this week as controversy over the fuel swirls. Corn growing states filed a motion this week trying to compel the courts to force the EPA to waive pollution laws to allow E15 blends. Meanwhile, the desire to grow even more corn to produce Jet Fuel is being hotly debated as the environmental impacts depend on which side of the food to fuel lobby you talk to.

The chaotic canal congestion in Panama is getting worse as authorities are continuing to reduce the daily number of ships transiting due to low water levels. Those delays are hitting many industries, energy included, and are now spilling over to one of the world’s other key shipping bottlenecks.

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Pivotal Week For Price Action
Market TalkThursday, Nov 30 2023

No Official Word From OPEC Yet On Their Output Agreement For Next Year

Energy prices are pushing higher to start Thursday’s session after a big bounce Wednesday helped the complex maintain its upward momentum for the week.   

There’s no official word from OPEC yet on their output agreement for next year, but the rumor-mill is in high gear as always leading up to the official announcement, if one is actually made at all. A Reuters article this morning suggests that “sources” believe Saudi Arabia will continue leading the cartel with a voluntary output cut of around 1-million BPD to begin the year and given the recent drop in prices that seems like a logical move. 

We saw heavy selling in the immediate wake of the DOE’s weekly report Wednesday, only to see prices reverse course sharply later in the day. ULSD was down more than 9-cents for a few minutes following the report but bounced more than 7-cents in the afternoon and is leading the push higher this morning so far.

It’s common to see demand drop sharply following a holiday, particularly for diesel as many commercial users simply shut down their operations for several days, but last week’s drop in implied diesel demand was one of the largest on record for the DOE’s estimates. That drop in demand, along with higher refinery runs, helped push diesel inventories higher in all markets, and the weekly days of supply estimate jumped from below the 5-year seasonal range around 25 days of supply to above the high end of the range at 37 days of supply based on last week’s estimated usage although it’s all but guaranteed we’ll see a correction higher in demand next week.

Gasoline demand also slumped, dropping to the low end of the seasonal range, and below year-ago levels for the first time in 5-weeks. You’d never guess that based on the bounce in gasoline prices that followed the DOE’s report however, with traders appearing to bet that the demand slump in a seasonal anomaly and tighter than average inventories may drive a counter-seasonal price rally.

Refinery runs increased across the country as plants returned to service following the busiest fall maintenance season in at least 4-years. While total refinery run rates are still below last year’s levels, they’re now above the 5-year average with more room to increase as no major upsets have been reported to keep a large amount of throughput offline.

The exception to the refinery run ramp up comes from PADD 4 which was the only region to see a decline last week after Suncor apparently had another inopportune upset at its beleaguered facility outside Denver. 

The 2023 Atlantic Hurricane season officially ends today, and it will go down as the 4th most active season on record, even though it certainly didn’t feel too severe given that the US dodged most of the storms.  

Today is also the expiration day for December 2023 ULSD and RBOB futures so look to the January contracts (RBF and HOF) for price direction if your market hasn’t already rolled.

More refineries ready to change hands next year?  With Citgo scheduled to be auctioned off, Irving Oil undergoing a strategic evaluation, and multiple new refineries possibly coming online, 2024 was already looking to be a turbulent year for refinery owners. Phillips 66 was indicating that it may sell off some of its refinery assets, but a new activist investor may upend those plans, along with the company’s directors.

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