Refined Product Futures Are Now Trading 12 Cents Lower From The Overnight High Set Sunday Night

Market TalkTuesday, Jan 30 2024
Pivotal Week For Price Action

Energy futures are trading lower for a 2nd day in a row as a major announcement from the world’s largest exporter seems to be outweighing both fears of the growing conflict in the Middle East and a record-setting run for stocks. 

Saudi Arabia announced Tuesday that it was scrapping plans to expand the Kingdom’s output capacity from 12 to 13 million barrels/day, in what is seen as a sign that the world has more than enough spare capacity to meet demand growth in the next 5 years.   

Refined product futures are now trading 12 cents lower from the overnight high set Sunday night when it looked like the US was being drawn into yet another war in the Middle East.  RBOB futures led the selloff Monday, and so far it’s ULSD leading the move this morning, trading down more than 6 cents after a brief rally attempt overnight was wiped out by the Saudi news. The 200-day moving average is in play for both RBOB and ULSD today and should provide a good short-term barometer on how serious this sell-off is going to be.

Los Angeles CARBOB basis values have rallied more than 30 cents in the past week as Kinder Morgan begins its annual RVP transition, requiring 5.99 RVP CARBOB by the 2nd delivery cycle in February, more than 2 months earlier than many markets around the country will convert to summer grades. That early transition will create both issue and opportunity for the state’s suppliers as the main pipeline network will be shipping a much lower RVP than is required at the terminals for several weeks.

RINs continue their collapse, with both D4 and D6 values trading down to a fresh 3.5 year low around $.51/RIN Monday, compared to $1.60/RIN this time last year. Fundamentally there may still be room to fall as the rapid increase in RIN generation caused by new RD production far outpaces the demand set by the EPA, and technically, there’s an argument we’ll see prices continue to drop into the 30-cent range before completing their inverse flag pattern that’s been in place since prices started collapsing 6 months ago.

The drop in RIN values is welcome news for many refiners as their cost of complying with the Renewable Fuel Standard (AKA the RVO) has fallen to less than $3/barrel, from the $9-$10/barrel range that we became accustomed to over the past couple of years. On the other hand, those refiners that raced to convert facilities to renewable production over the past several years are now watching their margins collapse as the RIN and LCFS subsidies lose value.

The TransMountain pipeline announced it had run into more “technical issues” that will delay the start of that project to alleviate the bottleneck of Canadian crude supply, and opening the Pacific basin to producers. Western Canadian price differentials dropped more than $2/barrel on that news, offering another short term shot in the arm for US mid-continent refiners that are struggling under the weight of weak basis values this winter. The longer term outlook however remains challenging as US facilities that have relied on large Canadian discounts will now be competing with buyers across Asia for those barrels.

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

Market Talk Update 1.30.24

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Pivotal Week For Price Action
Market TalkWednesday, Jul 17 2024

Energy Markets Are Trying To Find A Price Floor After Gasoline And Crude Oil Staged A Healthy Bounce To Minimize The Heavy Losses

Energy markets are trying to find a price floor after gasoline and crude oil staged a healthy bounce to minimize the heavy losses we saw early in Tuesday’s session. WTI is leading the move higher early Wednesday, up nearly $.90/barrel in the early going, while RBOB prices are up just under a penny.

Diesel continues to look like the weak link in the energy chain both technically and fundamentally. Tuesday the API reported a 4.9 million barrel build in diesel stocks, while gasoline inventories were only up 365,000 barrels, and crude oil stocks declined by more than 4.4 million barrels. The DOE’s weekly report is due out at its normal time this morning and it’s likely we’ll see a reduction in oil output and PADD 3 refining runs thanks to shut ins ahead of Hurricane Beryl, but otherwise the storm appears to be a relative non-issue with only 1 notable refining hiccup, that wasn’t even as bad as a midwestern Thunderstorm.

Chicago basis values rallied Tuesday after reports that Exxon had shut down the 250mb/day Joliet refinery following severe storms that knocked out power to the area Sunday. RBOB differentials surged nearly 9 cents on the day, while diesel diffs jumped more than a nickel. With 3 large refineries in close proximity, the Chicago cash market is notoriously volatile if any of those facilities has an upset. Back in May there was a one-day spike in gasoline basis of more than 50 cents/gallon after Joliet had an operating upset so don’t be surprised if there are bigger swings this week if the facility doesn’t come back online quickly.

Moving in the opposite direction, California basis values are heading the opposite direction with the transition to August scheduling pressuring CARBOB differentials in LA and San Francisco to their biggest discounts to prompt RBOB futures in more than 18 months. Gasoline imports into PADD 5 have held well above average levels over the past 2 months, which has more than offset the loss of the P66 Rodeo refinery’s output after it completed its conversion to RD production, in another sign of how growing refining capacity in China and other Asian countries may become more influential to the US. California regulators may also pat themselves on the back that their new plans to force refineries to report their gross profit monthly, in addition to the rules requiring all bulk trades in the state be reported must be driving the lower gasoline differentials, assuming they figure out what a basis differential is.

Meanwhile, California’s Carbon Allowance values have tumbled to their lowest levels in a year after a CARB presentation last week suggested the agency would be delaying long-anticipated tightening of the Cap and Trade program until 2026.

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

Pivotal Week For Price Action
Market TalkTuesday, Jul 16 2024

The Sell-Off In Energy Markets Continues, With Refined Products Reaching Their Lowest Levels In A Month Early In Tuesday’s Session

The sell-off in energy markets continues, with refined products reaching their lowest levels in a month early in Tuesday’s session. Reports of slowing growth in China, the world’s largest oil purchaser, is getting much of the credit for the slide in prices so far this week, although that doesn’t do much to explain why refined products are outpacing the drop in crude.

ULSD futures are leading the early move lower, trading down a nickel on the day, and marking a 19 cent drop since July 4th. There’s not much in the way of technical support for ULSD, so don’t be surprised if this sell-off continues to pick up steam.

With today’s slide, RBOB futures are down 17 cents from where they were trading on July 4th, and are just a couple of cents from testing their 200-day moving average. Should that support break, it looks like there’s a good chance to test the June lows around $2.29.

Physical markets are not offering any strength to the futures market with all 6 of the major cash markets for diesel across the US trading at a discount to ULSD futures, while only 1 gasoline market is trading at a premium to RBOB futures. That combination of weakness in futures and cash markets is going to be troubling for refiners who are seeing margins reduce during what is traditionally a strong time of year.

The EIA highlighted the energy trade between the US and Mexico in a report Monday, showing that despite so many claims of energy independence from Mexican officials, the actual amount of refined fuels and natural gas bought from the US continues to increase. That’s good news for many US refiners who have become more dependent on Mexican purchases to find a home for their output.

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