Refined Products Are Seeing A Modest Pullback This Morning After A Furious 2-Day Rally To Start The Week

Market TalkWednesday, Oct 5 2022
Pivotal Week For Price Action

Refined products are seeing a modest pullback this morning after a furious 2-day rally to start the week. The moves in futures have mirrored the moves in stock markets which are also seeing some modest selling after one of the largest 2-day rallies on record.   

The two most powerful cartels influencing energy markets are OPEC and the US federal reserve, and expectations for both seem to be having a big influence on the price action this week even though neither one has yet made any official announcements. 

OPEC and friends are holding their first in person meeting in 2 years today, and there have been widespread reports that the cartel is planning a large production cut, despite pressure by the US to keep production high. The reality that OPEC is undershooting its production target by more than 1.3 million barrels/day suggests that an announced cut less than that amount may mean actual production will increase.

Want some evidence that we’re back in a “bad news is good news” market?  Yesterday the apparent catalyst for the biggest rally in stock markets in 2 years was a large and wide-spread drop in job openings in the US, which apparently had many thinking the FED pivot from its explicitly hawkish monetary policy sooner than previously expected. If that logic sounds shaky to you, you’re certainly not alone, and at some point the demand fears may come creeping back as traders remember that fewer jobs equates to fewer vehicles on the road and less real money to buy things.

While gasoline basis values in several markets were continuing their return to reality, diesel differentials saw more strength, leading to a rare occurrence where every major spot market in the US was trading at a premium to ULSD futures. 

Strong cash markets around the country seemed to be foreshadowing tighter inventories, and that’s exactly what the API showed Tuesday afternoon with gasoline stocks declining by 3.5 million barrels and diesel dropping by 4 million barrels. The report also estimated that crude oil inventories dropped by 1.8 million barrels despite the ongoing release of oil from the SPR.  

The DOE’s weekly report is due out at 9:30 central. The strength we’ve seen in basis, calendar and crack spreads in the past two weeks suggests that refineries are struggling to increase production, making refinery output an important figure to watch today.

Today’s interesting read: How a new deal between Israel and Lebanon could be a game changer for European Natural gas supplies…eventually. 

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

Market Talk Update 10.05.2022

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Pivotal Week For Price Action
Market TalkThursday, Feb 29 2024

It's Another Mixed Start For Energy Futures This Morning After Refined Products Saw Some Heavy Selling Wednesday

It's another mixed start for energy futures this morning after refined products saw some heavy selling Wednesday. Both gasoline and diesel prices dropped 7.5-8.5 cents yesterday despite a rather mundane inventory report. The larger-than-expected build in crude oil inventories (+4.2 million barrels) was the only headline value of note, netting WTI futures a paltry 6-cent per barrel gain on the day.

The energy markets seem to be holding their breath for this morning’s release of the Personal Consumption Expenditures (PCE) data from the Bureau of Economic Analysis (BEA). The price index is the Fed’s preferred inflation monitor and has the potential to impact how the central bank moves forward with interest rates.

Nationwide refinery runs are still below their 5-year average with utilization across all PADDs well below 90%. While PADD 3 production crossed its 5-year average, it’s important to note that measure includes the “Snovid” shutdown of 2021 and throughput is still below the previous two years with utilization at 81%.

We will have to wait until next week to see if the FCC and SRU shutdowns at Flint Hills’ Corpus Christi refinery will have a material impact on the regions refining totals. Detail on the filing can be found on the Texas Commission on Environmental Quality website.

Update: the PCE data shows a decrease in US inflation to 2.4%, increasing the likelihood of a rate cut later this year. Energy futures continue drifting, unfazed.

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
Pivotal Week For Price Action
Market TalkWednesday, Feb 28 2024

It’s Red Across The Board For Energy Prices So Far This Morning With The ‘Big Three’ Contracts All Trading Lower To Start The Day

It’s red across the board for energy prices so far this morning with the ‘big three’ contracts (RBOB, HO, WTI) all trading lower to start the day. Headlines are pointing to the rise in crude oil inventories as the reason for this morning’s pullback, but refined product futures are leading the way lower, each trading down 1% so far, while the crude oil benchmark is only down around .3%.

The American Petroleum Institute published their national inventory figures yesterday afternoon, estimating an 8+ million-barrel build in crude oil inventory across the country. Gasoline and diesel stocks are estimated to have dropped by 3.2 and .5 million barrels last week, respectively. The official report from the Department of Energy is due out at its regular time this morning (9:30 CST).

OPEC’n’friends are rumored to be considering extending their voluntary production cuts into Q2 of this year in an effort to buoy market prices. These output reductions, reaching back to late 2022, are aimed at paring back global supply by about 2.2 million barrels per day and maintaining a price floor. On the flip side, knowledge of the suspended-yet-available production capacity and record US output is keeping a lid on prices.

How long can they keep it up? While the cartel’s de facto leader (Saudi Arabia) may be financially robust enough to sustain itself through reduced output indefinitely, that isn’t the case for other member countries. Late last year Angola announced it will be leaving OPEC, freeing itself to produce and market its oil as it wishes. This marks the fourth membership suspension over the past decade (Indonesia 2016, Qatar 2019, Ecuador 2020).

The spot price for Henry Hub natural gas hit a record low, exchanging hands for an average of $1.50 per MMBtu yesterday. A rise in production over the course of 2023 and above average temperatures this winter have pressured the benchmark to a price not seen in its 27-year history, much to Russia’s chagrin.

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