Refined Product Futures Drift Higher After Monday's Abbreviated Trading Session

Market TalkTuesday, Feb 21 2023
Pivotal Week For Price Action

Energy futures held onto most of their gains through Monday’s abbreviated holiday trading session, and thus started Tuesday’s session with nickel gains for distillates and 4 cents for gasoline.     

There’s not much in the way of news moving prices so far this morning, with US equities pointing to a lower open while the US dollar is seeing modest gains with many headlines still obsessing over future interest rate policy.  

Brent Crude, which was open for a regular trading session Monday, is seeing a modest pullback today after reports that Russian oil exports surged ahead of the country’s self-imposed oil production cuts. 

Russia also said today it is suspending participation in its nuclear arms treaty with the US, in a sign of retaliation for the US president’s visit to Kiev Monday.  Separately, flows of Kazakh crude oil pledged to Germany through a Russian pipeline system have been delayed, without any reasons given, which could be just the latest swing of Russia’s shrinking energy sword.

The CFTC announced it would start trying to catch up on its 3 weeks of missing COT reports this Friday, starting by publishing the report that was originally scheduled for February 3rd, and then expediting the other two reports if all goes well.  

New idea or the same old scam?  United airlines and 5 corporate partners are launching a venture capital fund that will invest in companies developing SAF.  Never one to pass up a shameless plug, the airline said it will allow customers to donate to the fund in exchange for 500 frequent flier miles.   SAF development is getting more focus thanks to last year’s “Inflation creation Reduction Act” that offers $1.25/gallon in tax credits for SAF plus 1 cent per % point of reduction in greenhouse gas emissions below 50% of traditional fuels.  This credit is notably higher than the credits offered for Bio and Renewable diesel products that are competing for the same feedstocks and processing assets, leading many to believe that the development of SAF will be to the detriment of the on-road fuels.

The IEA issues another scolding to the oil and gas sector today in its latest Global Methane Tracker that suggests companies continue coming up short in efforts to curb emissions despite improving economics to do so. In recent weeks we’ve seen Exxon Mobil end a decade-long effort to develop algae as a renewable fuel source, and BP take a big step back from its emissions targets as the oil majors have apparently decided that they’ll continue acting like oil companies as long as the money is good. 

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

Click here to read: February 20, 2023 Presidents Day Market Talk

Market Talk Update 02.21.2023

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Pivotal Week For Price Action
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.