Rollercoaster Ride Continues For Energy Prices
The rollercoaster ride continues for energy prices, although it seems to be a pared down version so far compared to the huge swings we saw last week. An OPEC meeting, new COVID restrictions, the Suez Canal and equity market drama are all getting some credit for the recent run-up in volatility.
The great refinery restart seems to be entering its final phase, as more units return to operation, and markets across Texas have seen their supply levels get closer to normal. It will probably take another week or two for those supplies to make their way through the Colonial system, but we’re already seeing spot and rack spreads from the southwest to the southeast collapsing as the risk of runouts diminish.
The Suez Canal was cleared on Monday and more than 100 ships are estimated to have transited the waterway in both directions since the ship was finally floated, thanks in large part to the moon. It will take several more days to clear the backlog of ships, but it seems like the market has already put this situation in the rearview mirror.
A new 25 year agreement between China and Iran looks like it will be bearish for oil prices, as it will allow Iran to circumvent U.S. sanctions and bring more of its oil to market.
The EIA this morning published a look at U.S. retail gasoline prices, which are up $1/gallon from a year ago, after seeing their longest streak of weekly increases in 25 years.
Today’s interesting read: How the big Ag companies are positioning themselves to benefit from the Renewable Diesel production boom. The spike in soybean oil prices caused by this phenomenon is getting much of the credit for the recent run up in RIN prices, although they’ve seen a big pullback in the past week as bean oil prices pulled back from 9 year highs.
There were plenty of stories about a sketchy hedge fund blowing up and creating unprecedented margin calls that forced huge stock sales over the past couple of days. It appears that there was not any direct connection to this situation and energy companies or commodities in general, so it’s unlikely it contributed to the wild price swings we saw last week, or the junior version of them we’re seeing so far this week. That said, when fear starts to drive the price action, the correlation between energy and equity markets often gets stronger, so there could be an influence if the unrest starts to spread.
Click here to download a PDF of today's TACenergy Market Talk.
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View AllEnergy 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.
Week 23 - US DOE Inventory Recap
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.