Risk Has Gone Out Of Style

Market TalkThursday, Jun 11 2020
Late Rally Pushes Prices Into The Green

Risk has gone out of style after the FED painted a gloomy outlook for the U.S. economy Wednesday, and the dreaded second wave of COVID-19 cases appears to be upon us. The early selling in energy and equity markets is the largest in a month, and will break the upward trends in both asset classes if it lasts through the day. Assuming the bullish trend-lines break this week, the charts suggest we will see refined products test the $1 mark in the back half of the month.

The DOE weekly report set several new all-time high inventory records, even as demand showed signs of continued recovery. Surging imports accounted for the build in crude oil stocks – as expected based on the Saudi Armada reports – and the EIA made an adjustment to its crude oil output estimates, acknowledging that the weekly reports have been understating production cuts. Even after that adjustment, the “unaccounted for” crude oil number was more than 900,000 barrels/day negative, suggesting the agency still has some work to do to catch up with the reality in the field.

Diesel demand finally saw a large recovery bounce last week, rising 21 percent as the annual post-Memorial Day demand lull seems to have passed. Despite that bounce in consumption, diesel demand is still one million barrels/day (roughly 25 percent) less than it would normally would be, and inventories continued to build, reaching their highest levels since 1982.

It’s a similar story for gasoline as demand saw another healthy increase, but total consumption remains nearly two million barrels/day (~20 percent) below where it should be this time of year, and inventories increased as refineries increased production for a fourth straight week.

We’re finally learning about the winners from WTI’s April meltdown. Bloomberg is reporting that the great vampire squid Goldman Sachs has seen huge profits from its oil trading desk due to the spike in volatility this year. Meanwhile, regulations that attempted to keep banks from manipulating markets after they were bailed out a decade ago continue to negatively limit the trading that industry firms trying to hedge their positions can partake in.

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

Risk Has Gone Out Of Style gallery 0

News & Views

View All
Pivotal Week For Price Action
Market TalkWednesday, Jun 7 2023

Energy Prices Fluctuate: Chinese Imports Surge, Saudi Arabia Cuts Output and Buys Golf

Energy prices continue their back-and-forth trading, starting Wednesday’s session with modest gains, after a round of selling Tuesday wiped out the Saudi output cut bounce. 

A surge in China’s imports of crude oil and natural gas seem to be the catalyst for the early move higher, even though weak export activity from the world’s largest fuel buyer suggests the global economy is still struggling. 

New tactic?  Saudi Arabia’s plan to voluntarily cut oil production by another 1 million barrels/day failed to sustain a rally in oil prices to start the week, so they bought the PGA tour

The EIA’s monthly Short Term Energy Outlook raised its price forecast for oil, citing the Saudi cuts, and OPEC’s commitment to extend current production restrictions through 2024. The increase in prices comes despite reducing the forecast for US fuel consumption, as GDP growth projections continue to decline from previous estimates. 

The report included a special article on diesel consumption, and its changing relationship with economic activity that does a good job of explaining why diesel prices are $2/gallon cheaper today than they were a year ago.   

The API reported healthy builds in refined product inventories last week, with distillates up 4.5 million barrels while gasoline stocks were up 2.4 million barrels in the wake of Memorial Day. Crude inventories declined by 1.7 million barrels on the week. The DOE’s weekly report is due out at its normal time this morning. 

We’re still waiting on the EPA’s final ruling on the Renewable Fuel Standard for the next few years, which is due a week from today, but another Reuters article suggests that eRINs will not be included in this round of making up the rules.

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

Pivotal Week For Price Action
Pivotal Week For Price Action
Market TalkTuesday, Jun 6 2023

Energy Prices Retreat, Global Demand Concerns Loom

So much for that rally. Energy prices have given back all of the gains made following Saudi Arabia’s announcement that it would voluntarily withhold another 1 million barrels/day of oil production starting in July. The pullback appears to be rooted in the ongoing concerns over global demand after a soft PMI report for May while markets start to focus on what the FED will do at its FOMC meeting next week.

The lack of follow through to the upside leaves petroleum futures stuck in neutral technical territory, and since the top end of the recent trading range didn’t break, it seems likely we could see another test of the lower end of the range in the near future.  

RIN prices have dropped sharply in the past few sessions, with traders apparently not waiting on the EPA’s final RFS ruling – due in a week – to liquidate positions. D6 values dropped to their lowest levels in a year Monday, while D4 values hit a 15-month low. In unrelated news, the DOE’s attempt to turn seaweed into biofuels has run into a whale problem.  

Valero reported a process leak at its Three Rivers TX refinery that lasted a fully 24 hours.  That’s the latest in a string of upsets for south Texas refineries over the past month that have kept supplies from San Antonio, Austin and DFW tighter than normal. Citgo Corpus Christi also reported an upset over the weekend at a sulfur recovery unit. Several Corpus facilities have been reporting issues since widespread power outages knocked all of the local plants offline last month.  

Meanwhile, the Marathon Galveston Bay (FKA Texas City) refinery had another issue over the weekend as an oil movement line was found to be leaking underground but does not appear to have impacted refining operations at the facility. Gulf Coast traders don’t seem concerned by any of the latest refinery issues, with basis values holding steady to start the week.

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