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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Week 48 - US DOE Inventory Recap
The API Reported Gasoline Inventories Dropped By 898,000 Barrels Last Week
Gasoline and oil prices are attempting to rally for a 2nd straight day, a day ahead of the delayed OPEC meeting, while diesel prices are slipping back into the red following Tuesday’s strong showing.
The API reported gasoline inventories dropped by 898,000 barrels last week, crude inventories declined by 817,000 barrels while distillates saw an increase of 2.8 million barrels. Those inventory stats help explain the early increases for RBOB and WTI while ULSD is trading lower. The DOE’s weekly report is due out at its normal time this morning.
A severe storm on the Black Sea is disrupting roughly 2% of the world’s daily oil output and is getting some credit for the bounce in futures, although early reports suggest that this will be a short-lived event.
Chevron reported that its Richmond CA refinery was back online after a power outage Monday night. San Francisco spot diesel basis values rallied more than a dime Tuesday after a big drop on Monday following the news of that refinery being knocked offline.
Just a few days after Scotland’s only refinery announced it would close in 2025, Exxon touted its newest refinery expansion project in the UK Tuesday, with a video detailing how it was ramping up diesel production to reduce imports and possibly allow for SAF production down the road at its Fawley facility.
Ethanol prices continue to slump this week, reaching a 2-year low despite the bounce in gasoline prices as corn values dropped to a 3-year low, and the White House appears to be delaying efforts to shift to E15 in an election year.
Click here to download a PDF of today's TACenergy Market Talk.
Values For Space On Colonial’s Main Gasoline Line Continue To Drop This Week
The petroleum complex continues to search for a price floor with relatively quiet price action this week suggesting some traders are going to wait and see what OPEC and Friends can decide on at their meeting Thursday.
Values for space on Colonial’s main gasoline line continue to drop this week, with trades below 10 cents/gallon after reaching a high north of 18-cents earlier in the month. Softer gasoline prices in New York seems to be driving the slide as the 2 regional refiners who had been down for extended maintenance both return to service. Diesel linespace values continue to hold north of 17-cents/gallon as East Coast stocks are holding at the low end of their seasonal range while Gulf Coast inventories are holding at average levels.
Reversal coming? Yesterday we saw basis values for San Francisco spot diesel plummet to the lowest levels of the year, but then overnight the Chevron refinery in Richmond was forced to shut several units due to a power outage which could cause those differentials to quickly find a bid if the supplier is forced to become a buyer to replace that output.
Money managers continued to reduce the net length held in crude oil contracts, with both Brent and WTI seeing long liquidation and new short positions added last week. Perhaps most notable from the weekly COT report data is that funds are continuing their counter-seasonal bets on higher gasoline prices. The net length held by large speculators for RBOB is now at its highest level since Labor Day, at a time of year when prices tend to drop due to seasonal demand weakness.
Click here to download a PDF of today's TACenergy Market Talk.