Refined Products Struggle To Keep Up After Friday’s Report

Market TalkMonday, Jun 14 2021
Pivotal Week For Price Action

Oil prices are reaching fresh multi-year highs this morning, while refined products struggle to keep up after Friday’s report on potential changes to the RFS became a game changer for RIN prices, which is having a major impact on crack spreads. Equity markets continue to hold near record highs, and that may be enough to keep the oil price rally intact, while products seem like they be stuck watching the latest news out of Washington.

There were no further developments following the Reuters report Friday that the President was mulling RFS relief for refiners, but RIN values still dropped as much as 30 cents on the day, and ended the day trading down around 27 cents from Thursday’s record close. With numerous other potential deals being negotiated on infrastructure spending and energy policy, it’s easy to see the RFS changes being used as a bargaining chip, but hard to say how the end result will look. 

Baker Hughes reported 6 more oil rigs were put to work last week, resuming the upward trend that stalled the week prior. 4 of the 6 rigs added were in the Permian basin, and the other 2 were in unclassified basins. 

Money managers acted like they knew the RFS story was going to be released last week, continuing to add to positions in WTI and Brent, while reducing their length in RBOB and ULSD contracts.  There is now more money held by the large speculative traders classified as money managers betting on higher oil prices than there’s been since July 2018…which is about the last time that we saw oil prices trading at these price levels. 

The OPEC monthly Oil market report held global demand estimates steady for the balance of the year, and increased supply estimates slightly as US production has come back online faster than previously anticipated. The Cartel’s production was up 390mb/day for the month, mainly driven by Saudi Arabia, which is unwinding the voluntary production cuts it made to prop up the market last year.

The IEA’s monthly oil market report took a similar stance as the OPEC report, showing more signs of recovery, and forecasting that global demand will return to pre-pandemic levels next year. The report also notes that OPEC should have plenty of spare capacity to meet that demand, and that new refinery projects in Asia and Middle Eastern markets will offset the rash of closures/conversions that have happened in Europe and the Americas over the past year, and will continue to limit refining margins. 

The FED’s open market committee (FOMC) meets this week, with an announcement due Wednesday afternoon. The CME’s fedwatch tool shows that traders are only giving 5% odds of a rate increase by the end of the year, so it’s unlikely we’ll see a rate change this week, but as always the market will be watching for any signals that the FOMC plans on reducing the huge amount of liquidity it’s been injecting via asset purchases to prop up the economy since the start of COVID.

Today’s interesting read: a good reminder from John Kemp on why the DOE’s weekly “demand” estimates are notoriously volatile from week to week.

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

Market Update (01A) 6.14.21

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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.