Refined Product Prices Seem To Have Found A Temporary Floor After A Big Selloff To Start The Year

Market TalkFriday, Jan 6 2023
Pivotal Week For Price Action

Refined product prices seem to have found a temporary floor after a big selloff to start the year, leaving refined products in the middle of the trading ranges they established in December, and needing to swing at least 20 cents in either direction before breaking out and finding a new path forward. 

This morning’s rally, after trading lower overnight, comes on the heels of the December payroll report which estimated 233,000 jobs were added in the US last month, while the previous 2 months had their estimates lowered by a combined 28,000. The headline unemployment rate dropped to 3.5% while the “U-6” rate dropped to 6.5%. That report seemed to meet the “goldilocks” criteria of not too good that it will encourage the FED to keep raising rates aggressively, but not too bad to show the US economy is falling further into a recession, and was quickly followed with a round of buying in both equity and energy markets.  

It looks like we’ve dodged another supply disruption bullet:Colonial provided an update on its line 3 shutdown Thursday afternoon, saying that the leak near Danville VA has been contained to company property and a restart mid-day on Saturday is still on the schedule. That news was met with a sigh of relief from shippers and a shrug from traders, and may not even make the top 10 list of supply disruptions the industry has dealt with over the past 2 years. 

Yesterday’s DOE report showed the largest weekly drop in US petroleum demand on record, with the estimate plummeting by 20%. For gasoline it was the 2nd worst drop ever, right behind the COVID lockdown collapse, while distillates saw their 4th worst drop on record. The silver lining to those terrible demand estimates is that it coincided with the 4th biggest disruption in refining activity on record, and limited the impact of the outages that hit 4 out of the 5 PADDs.    

The big question as we start the new year is how much of that demand collapse was noise from the weekly data being influenced by so many disruptions in the middle of the holidays, how much was temporary due to the parade of winter storms keeping drivers off the road, and how much is actually a reflection of weaker economic activity. Based on the market behavior to start trading in 2023, there’s a decent amount of money being bet that it’s the latter, which could make this an excellent buying opportunity if it’s not.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.

Market Talk Update 01.06.2023

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Market TalkThursday, Mar 30 2023

Refined Products Are Moving Lower For A 2nd Day After Coming Under Heavy Selling Pressure In Wednesday’s Session

Refined products are moving lower for a 2nd day after coming under heavy selling pressure in Wednesday’s session. Rapidly increasing refinery runs and sluggish diesel demand both seemed to weigh heavily on product prices, while crude oil is still benefitting from the disruption of exports from Iraq. Prices remain range-bound, so expect more choppy back and forth action in the weeks ahead.

US oil inventories saw a large decline last week, despite another 13-million barrels of oil being found in the weekly adjustment figure, as imports dropped to a 2-year low, and refinery runs cranked up in most regions as many facilities return from spring maintenance.

The refining utilization percentage jumped to its highest level of the year but remains overstated since the new 250,000 barrels/day of output from Exxon’s Beaumont facility still isn’t being counted in the official capacity figures. If you’re shocked that the government report could have such a glaring omission, then you haven’t been paying attention to the Crude Adjustment figure this year, and the artificially inflated petroleum demand estimates that have come with it.

Speaking of which, we’re now just a couple of months away from WTI Midland crude oil being included in the Dated Brent index, and given the uncertainty in the US over what should be classified as oil vs condensate, expect some confusion once those barrels start being included in the international benchmark as well.  

Diesel demand continues to hover near the lowest levels we’ve seen for the first quarter in the past 20+ years, dropping sharply again last week after 2 straight weeks of increases had some markets hoping that the worst was behind us. Now that we’re moving out of the heating season, we’ll soon get more clarity on how on road and industrial demand is holding up on its own in the weekly figures that have been heavily influenced by the winter that wasn’t across large parts of the country.

Speaking of which, the EIA offered another mea culpa of sorts Wednesday by comparing its October Winter Fuels outlook to the current reality, which shows a huge reduction in heating demand vs expectations just 6-months ago.  

It’s not just domestic consumption of diesel that’s under pressure, exports have fallen below their 5-year average as buyers in South America are buying more Russian barrels, and European nations are getting more from new facilities in the Middle East.

Take a look at the spike in PADD 5 gasoline imports last week to get a feel for how the region may soon be forced to adjust to rapidly increasing refining capacity in Asia, while domestic facilities come under pressure

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
Market TalkWednesday, Mar 29 2023

Crude Oil Prices Are Trying To Lead Another Rally In Energy Futures This Morning

Crude oil prices are trying to lead another rally in energy futures this morning, while ULSD prices are resisting the pull higher. Stocks are pointed higher in the early going as no news is seen as good news in the banking crisis.

WTI prices have rallied by $10/barrel in the past 7 trading days, even with a $5 pullback last Thursday and Friday. The recovery puts WTI back in the top half of its March trading range but there’s still another $7 to go before the highs of the month are threatened. 

Yesterday’s API report seems to be aiding the continued strength in crude, with a 6 million barrel inventory decline estimated by the industry group last week. That report also showed a decline of 5.9 million barrels of gasoline which is consistent with the spring pattern of drawdowns as we move through the RVP transition, while distillates saw a build of 550k barrels. The DOE’s weekly report is due out at its normal time this morning. 

Diesel prices seems to be reacting both to the small build in inventories – which is yet another data point of the weak demand so far this year for distillates – and on the back of crumbling natural gas prices that settled at their lowest levels in 2.5 years yesterday and fell below $2/million BTU this morning. 

While diesel futures are soft, rack markets across the Southwestern US remain unusually tight, with spreads vs spot markets approaching $1/gallon in several cases as local refiners go through maintenance and pipeline capacity for resupply remains limited. The tightest supply in the region however remains the Phoenix CBG boutique gasoline grade which is going for $1.20/gallon over spots as several of the few refineries that can make that product are having to perform maintenance at the same time. 

French refinery strikes continue for a 4th week and are estimated to be keeping close to 1 million barrels/day of fuel production offline, which is roughly 90% of French capacity and almost 1% of total global capacity. That disruption is having numerous ripple effects on crude oil markets in the Atlantic basin, while the impact on refined product supplies and prices remains much more contained than it was when this happened just 5 months ago.

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

Pivotal Week For Price Action