Risk Is Back In Style This Week - Refined Products Up Alongside Stock Market's Global Surge

Market TalkTuesday, Oct 4 2022
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Risk is back in style this week as refined products are up 16-20 cents to start the week alongside a surge in stock markets around the world.  After months of going their own way, the correlation between energy futures and the S&P 500 has approached the 80% mark recently, indicating that we’re entering another phase of being in a “risk on” or “risk off” environment with assets of many sorts heading the same direction daily depending on the mood, which often is driven by expectations for central bank easing (risk on) or tightening (risk off).

Rumors of an OPEC production cut ahead of tomorrow’s meeting are getting much of the credit for the run-up in energy prices, even though the cartel’s actual output has been lagging far behind targets this year.  That sets up a scenario where the member countries could increase actual output, while still lowering their official quotas, and laugh all the way to the bank if the market is in fact rallying because of those headlines.

$3.49 is looking like pivotal resistance for the ULSD contract this week, both because it ended up as the high water mark on two failed rallies in each of the past two weeks; and because it now represents the 200-day moving average.   IF diesel prices are able to break through that resistance there’s an argument to be made that a “W” pattern is forming on the charts that could end up meaning prices rally back to $4.50 this winter.  Cash markets are signaling that physical supplies are dwindling, with USGC values surging more than 23 cents Monday, pushing basis values to an unusual 8-cent premium over futures.  While those levels are still cheap in comparison to the West Coast (trading 50 cents over) or NYH Values (16 cents over) they’re a clear signal that backwardation is back, and significantly higher prices may soon follow. 

California gasoline prices started their return trip to reality Monday after the Air Resource Board and the major pipeline systems in the state confirmed an early switch to winter-grade gasoline products, and one of the refineries experiencing disruptions over the past few weeks was reported to be back online. Proving they have a keen grasp of the situation, CARB actually mentioned Hurricane Ian as one of the main issues causing the state’s prices to be so high.   Prompt values for CARBOB were valued just over a $2/gallon premium Monday night, down some 40 cents from last week’s highs, but still $1.30 or more above the next highest price outside of the West Coast.    

While the mystery of who sabotaged the Nord Stream pipelines remains, a plausible theory is that Russia now stands to benefit because it can declare Force Majeure on those lines and not face financial penalties for not honoring its contracts, as it did when they decided to shut the pipelines down in retaliation for Europe’s backing of Ukraine. 

A WSJ article Monday noted how China is taking advantage of its economic slowdown to reroute US natural gas to Europe.  Maybe they will end up sending Russian natural gas there as well.

The NHC is tracking two more storm systems this week, both of which have good odds of being named, but neither one looks like it will threaten the US. 

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

Martket Talk Update 10-04-22

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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.