Refined Product Prices Are Tumbling Wednesday After RBOB Prices Extended Their Winning Streak To 7 Days Tuesday

Market TalkWednesday, Mar 20 2024
Pivotal Week For Price Action

Refined product prices are tumbling Wednesday after RBOB prices extended their winning streak to 7 days Tuesday, reaching a fresh 6 month high, while WTI also set a new 5-month high mark. ULSD futures are once again leading the move lower and are down more than a dime in the past two days, while gasoline prices are down a nickel in the early going. At this point the pullback looks more technical in nature, as short-term indicators had reached deep into overbought territory during the run-up, and not the result of any news in particular.

The Department of Energy updated its Fuel Economy calculation for EV’s Tuesday, which is apparently step 1 of a 4 part energy plan by the administration to walk the tightrope of constituents this election year. On one hand, there’s a “gotcha” moment for EV haters since the rule reduces the calculated fuel economy of an Electric Vehicle by 65%. On the other hand, by reducing the EV calculations, the DOE is also forcing auto-makers to be more efficient with their other vehicles since the EVs they produce will no longer bring down the fleet’s average efficiency by as much as it did under the old method. If you’re having trouble sleeping at night, you can read the entire 77 page explanation here.

The API reported that both gasoline and crude oil inventories dropped by 1.5 million barrels last week, while distillates increased by just over ½ million barrels. The DOE’s report is due out at its normal time today, with refinery runs still the important number to watch as BP is reportedly fully back online at Whiting, while several Gulf Coast plants still struggle to recover from a busy maintenance season and numerous unplanned upsets. It’s probably too soon to see any impact on the Russian export flows in the DOE’s report, but diesel exports in particular will be a number to watch in the coming weeks as buyers like Brazil are expected to return to the USGC after taking advantage of disadvantaged Russian supplies for more than a year.

The FOMC will give their latest monetary policy update at 1pm today, and pretty much nobody expects them to announce a change in interest rates today. The CME’s Fedwatch tool shows that traders give 99% probability of no change at today’s meeting, which leaves the big question on what the FED will foreshadow for the rest of the year. At this point, 95% odds are given of no change at the May 1 meeting, and 64% odds are given that the first rate cut will be announced June 12. With inflation creeping back recently, and fuel prices now adding to the increase after a year of pulling prices lower, traders seem to be on edge that the FOMC may signal a later date to start cutting rates.

The EIA this morning highlighted the growth in Intrastate natural gas pipelines in recent years, with both Texas and Louisiana taking advantage of their unique combination of production and coastal access to avoid federal red tape.

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

Market Talk Update 3.20.2024

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Market TalkFriday, Apr 19 2024

Gasoline Futures Are Leading The Way Lower This Morning

It was a volatile night for markets around the world as Israel reportedly launched a direct strike against Iran. Many global markets, from equities to currencies to commodities saw big swings as traders initially braced for the worst, then reversed course rapidly once Iran indicated that it was not planning to retaliate. Refined products spiked following the initial reports, with ULSD futures up 11 cents and RBOB up 7 at their highest, only to reverse to losses this morning. Equities saw similar moves in reverse overnight as a flight to safety trade soon gave way to a sigh of relief recovery.

Gasoline futures are leading the way lower this morning, adding to the argument that we may have seen the spring peak in prices a week ago, unless some actual disruption pops up in the coming weeks. The longer term up-trend is still intact and sets a near-term target to the downside roughly 9 cents below current values. ULSD meanwhile is just a nickel away from setting new lows for the year, which would open up a technical trap door for prices to slide another 30 cents as we move towards summer.

A Reuters report this morning suggests that the EPA is ready to announce another temporary waiver of smog-prevention rules that will allow E15 sales this summer as political winds continue to prove stronger than any legitimate environmental agenda. RIN prices had stabilized around 45 cents/RIN for D4 and D6 credits this week and are already trading a penny lower following this report.

Delek’s Big Spring refinery reported maintenance on an FCC unit that would require 3 days of work. That facility, along with several others across TX, have had numerous issues ever since the deep freeze events in 2021 and 2024 did widespread damage. Meanwhile, overnight storms across the Midwest caused at least one terminal to be knocked offline in the St. Louis area, but so far no refinery upsets have been reported.

Meanwhile, in Russia: Refiners are apparently installing anti-drone nets to protect their facilities since apparently their sling shots stopped working.

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

Pivotal Week For Price Action
Market TalkThursday, Apr 18 2024

The Sell-Off Continues In Energy Markets, RBOB Gasoline Futures Are Now Down Nearly 13 Cents In The Past Two Days

The sell-off continues in energy markets. RBOB gasoline futures are now down nearly 13 cents in the past two days, and have fallen 16 cents from a week ago, leading to questions about whether or not we’ve seen the seasonal peak in gasoline prices. ULSD futures are also coming under heavy selling pressure, dropping 15 cents so far this week and are trading at their lowest level since January 3rd.

The drop on the weekly chart certainly takes away the upside momentum for gasoline that still favored a run at the $3 mark just a few days ago, but the longer term up-trend that helped propel a 90-cent increase since mid-December is still intact as long as prices stay above the $2.60 mark for the next week. If diesel prices break below $2.50 there’s a strong possibility that we see another 30 cent price drop in the next couple of weeks.

An unwind of long positions after Iran’s attack on Israel was swatted out of the sky without further escalation (so far anyway) and reports that Russia is resuming refinery runs, both seeming to be contributing factors to the sharp pullback in prices.

Along with the uncertainty about where the next attacks may or may not occur, and if they will have any meaningful impact on supply, come no shortage of rumors about potential SPR releases or how OPEC might respond to the crisis. The only thing that’s certain at this point, is that there’s much more spare capacity for both oil production and refining now than there was 2 years ago, which seems to be helping keep a lid on prices despite so much tension.

In addition, for those that remember the chaos in oil markets 50 years ago sparked by similar events in and around Israel, read this note from the NY Times on why things are different this time around.

The DOE’s weekly status report was largely ignored in the midst of the big sell-off Wednesday, with few noteworthy items in the report.

Diesel demand did see a strong recovery from last week’s throwaway figure that proves the vulnerability of the weekly estimates, particularly the week after a holiday, but that did nothing to slow the sell-off in ULSD futures.

Perhaps the biggest next of the week was that the agency made its seasonal changes to nameplate refining capacity as facilities emerged from their spring maintenance.

PADD 2 saw an increase of 36mb/day, and PADD 3 increased by 72mb/day, both of which set new records for regional capacity. PADD 5 meanwhile continued its slow-motion decline, losing another 30mb/day of capacity as California’s war of attrition against the industry continues. It’s worth noting that given the glacial pace of EIA reporting on the topic, we’re unlikely to see the impact of Rodeo’s conversion in the official numbers until next year.

Speaking of which, if you believe the PADD 5 diesel chart below that suggests the region is running out of the fuel, when in fact there’s an excess in most local markets, you haven’t been paying attention. Gasoline inventories on the West Coast however do appear consistent with reality as less refining output and a lack of resupply options both continue to create headaches for suppliers.

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