Refined Products Are Leading The Charge Higher This Morning With 5.5 Cent Gains

Market TalkWednesday, Jan 26 2022
Pivotal Week For Price Action

Up, up and away? Energy futures have staged a big rally off of Monday’s lows and several contracts are now within a few ticks of reaching fresh 7 year highs. Refined products are leading the charge higher this morning, with 5.5 cent gains putting ULSD just 16 points away from its highest trade since October 2014 and threatening another technical breakout to the upside.  Brent crude meanwhile is just a few ticks below the $90 mark, already reaching a fresh high for the year overnight.

Looking at the charts, if we see new highs set and held this week, there’s a strong case to be made for crude making a run at $100, and ULSD taking a shot at $3. Fundamentally, as long as OPEC and Friends are unable to meet their output quotas, the argument for that type of price spike continues to strengthen as well. 

The FED and Ukraine continue to be the big stories roiling markets, with US equities having more huge swings in Tuesday’s session, and starting out Wednesday pointing to healthy gains, while volatility is at its highest for stocks in over a year.

The FOMC will make their first monetary policy decision of what’s expected to be a very busy year for the FED.  The CME’s Fedwatch tool shows only a 5% probability of a rate hike today, but a 97% chance of an increase by March. In addition, the probability of 3 or more hikes by the end of the year has increased to 92%, from 65% a month ago as the FED has been foreshadowing a tougher stance on inflation.

The API reportedly estimated a small decline in crude oil stocks last week of less than 1 million barrels, while distillates drew down by 2.2 million barrels. Gasoline meanwhile continued its seasonal stock build with an increase of 2.4 million barrels, marking the 4th straight week of gains. The EIA report is due out at its normal time today, and if the seasonal trend holds we should continue to see gasoline stocks increasing for another few weeks before starting to draw down ahead of the spring RVP transition.  

How’s that plan working out? The DOE last week announced the 2nd largest award ever from the SPR as 7 companies raced to take advantage of the steeply backwardated price curve and gladly pay the government back in 2-3 years where they can lock in prices 20% or more lower than what they’re receiving today, which should easily cover the “interest” payable on those loans. Meanwhile, energy products continue to push multi-year highs despite the political theater of this coordinated SPR release that was supposed to help lower prices. 

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Market Talk Update 1.26.22

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Market TalkFriday, Jul 19 2024

Summertime-Friday-Apathy Trade Influencing Energy Markets

Energy markets are treading water to start the day as the Summertime-Friday-Apathy trade seems to be influencing markets around the world in the early going. RBOB futures are trying for a 3rd straight day of gains to wipe out the losses we saw to start the week, while ULSD futures continue to look like the weak link, trading lower for a 2nd day and down nearly 3 cents for the week.

Bad to worse: Exxon’s Joliet refinery remains offline with reports that repairs may take through the end of the month. On top of that long delay in restoring power to the facility, ENT reported this morning that the facility has leaked hydrogen fluoride acid gas, which is a dangerous and controversial chemical used in alkylation units. Chicago basis values continue to rally because of the extended downtime, with RBOB differentials approaching a 50-cent premium to futures, which sets wholesale prices just below the $3 mark, while ULSD has gone from the weakest in the country a month ago to the strongest today. In a sign of how soft the diesel market is over most of the US, however, the premium commanded in a distressed market is still only 2 cents above prompt futures.

The 135mb Calcasieu Refinery near Lake Charles LA has been taken offline this morning after a nearby power substation went out, and early reports suggest repairs will take about a week. There is no word yet if that power substation issue has any impacts on the nearby Citgo Lake Charles or P66 Westlake refineries.

Two tanker ships collided and caught fire off the coast of Singapore this morning. One ship was a VLCC which is the largest tanker in the world capable of carrying around 2 million barrels. The other was a smaller ship carrying “only” 300,000 barrels (roughly 12 million gallons) of naphtha. The area is known for vessels in the “dark fleet” swapping products offshore to avoid sanctions, so a collision isn’t too surprising as the vessels regularly come alongside one another, and this shouldn’t disrupt other ships from transiting the area.

That’s (not) a surprise: European auditors have determined the bloc’s green hydrogen goals are unattainable despite billions of dollars of investment, and are based on “political will” rather than analysis. Also (not) surprising, the ambitious plans to build a “next-gen” hydrogen-powered refinery near Tulsa have been delayed.

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

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Market TalkThursday, Jul 18 2024

Refined Products Stanch Bleeding Despite Inventory Builds And Demand Slump

Refined products are trading slightly lower to start Thursday after they stopped the bleeding in Wednesday’s session, bouncing more than 2 cents on the day for both RBOB and ULSD, despite healthy inventory builds reported by the DOE along with a large slump in gasoline demand.

Refinery runs are still above average across the board but were pulled in PADD 3 due to the short-term impacts of Beryl. The Gulf Coast region is still outpacing the previous two years and sitting at the top end of its 5-year range as refiners in the region play an interesting game of chicken with margins, betting that someone else’s facility will end up being forced to cut rates before theirs.

Speaking of which, Exxon Joliet was reportedly still offline for a 3rd straight day following weekend thunderstorms that disrupted power to the area. Chicago RBOB basis jumped by another dime during Wednesday’s session as a result of that downtime. Still, that move is fairly pedestrian (so far) in comparison to some of the wild swings we’ve come to expect from the Windy City. IIR via Reuters reports that the facility will be offline for a week.

LA CARBOB differentials are moving in the opposite direction meanwhile as some unlucky seller(s) appear to be stuck long and wrong as gasoline stocks in PADD 5 reach their highest level since February, and held above the 5-year seasonal range for a 4th consecutive week. The 30-cent discount to August RBOB marks the biggest discount to futures since 2022.

The EIA Wednesday also highlighted its forecast for rapid growth in “Other” biofuels production like SAF and Renewable Naptha and Propane, as those producers capable of making SAF instead of RD can add an additional $.75/gallon of federal credits when the Clean Fuels Producer’s Credit takes hold next year. The agency doesn’t break out the products between the various “Other” renewable fuels, but the total projected output of 50 mb/day would amount to roughly 2% of total Jet Fuel production if it was all turned to SAF, which of course it won’t as the other products come along for the ride similar to traditional refining processes.

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

Pivotal Week For Price Action