Santa Claus Rally Gripping Markets Around The World

Market TalkFriday, Dec 15 2023
Pivotal Week For Price Action

The recovery rally continues for a 3rd day, with gasoline and diesel futures up more than 16 cents since bottoming out earlier in the week. RBOB and WTI futures are both poised to snap their 7-week losing streaks, as a Santa Claus rally seems to be gripping markets around the world.

Even though the traditional positive correlation between equity and energy markets (both move up and down together) and the negative correlation between the U.S. Dollar and commodities (stronger dollar, cheaper oil prices) haven’t been in place for several months, it certainly seems that the optimism following signals from global central banks that we’re set to see monetary policy loosen up next year is impacting all asset classes this week. 

U.S. equities in particular have been overly optimistic about the FED’s outlook for much of the past year, so it’s certainly possible they’re outkicking their coverage once again, but a strong retail sales number released Thursday suggests U.S. consumers continue to be resilient and are perhaps putting the savings from lower gasoline prices to work elsewhere in the economy.

Despite the big bounce, both RBOB and ULSD have some work still to do to break out of the bearish trends on the weekly charts. The first test for gasoline prices comes in the low $2.20s, while ULSD will need to get back above $2.70 to prove this is more than just a short-term correction in a larger bear market. If you’re one who is hoping prices continue to fall, read this

The White House is still expected to make an announcement today on its plans for allowing ethanol to produce Sustainable Aviation Fuel, although the modeling needed to prove carbon reductions from that process remains unclear and will remain a hotly debated issue, particularly in an election year. Ethanol producers are looking desperate for a win in this battle as their prices have dropped near a 3-year low this week.

Trouble in the Panhandle: Both the Valero and P66 refineries in the TX panhandle that serve W. Texas, New Mexico and Colorado reported upsets to the TCEQ in the past 24 hours. While those facilities don’t directly impact any spot markets given their relatively isolated locations (AKA BFE) their continued struggles to operate efficiently have kept local rack supplies tight for some time. Meanwhile, Marathon reported that the fire earlier in the week at its Galveston Bay facility only impacted a sour water storage system which is why refining operations were not slowed by that event.

Today’s interesting read courtesy of RBN Energy:  5 ways the market might react to the sudden oversupply of Renewable Diesel. 

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

Market Talk Update 12-15-23

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Pivotal Week For Price Action
Pivotal Week For Price Action
Market TalkWednesday, Jul 17 2024

Energy Markets Are Trying To Find A Price Floor After Gasoline And Crude Oil Staged A Healthy Bounce To Minimize The Heavy Losses

Energy markets are trying to find a price floor after gasoline and crude oil staged a healthy bounce to minimize the heavy losses we saw early in Tuesday’s session. WTI is leading the move higher early Wednesday, up nearly $.90/barrel in the early going, while RBOB prices are up just under a penny.

Diesel continues to look like the weak link in the energy chain both technically and fundamentally. Tuesday the API reported a 4.9 million barrel build in diesel stocks, while gasoline inventories were only up 365,000 barrels, and crude oil stocks declined by more than 4.4 million barrels. The DOE’s weekly report is due out at its normal time this morning and it’s likely we’ll see a reduction in oil output and PADD 3 refining runs thanks to shut ins ahead of Hurricane Beryl, but otherwise the storm appears to be a relative non-issue with only 1 notable refining hiccup, that wasn’t even as bad as a midwestern Thunderstorm.

Chicago basis values rallied Tuesday after reports that Exxon had shut down the 250mb/day Joliet refinery following severe storms that knocked out power to the area Sunday. RBOB differentials surged nearly 9 cents on the day, while diesel diffs jumped more than a nickel. With 3 large refineries in close proximity, the Chicago cash market is notoriously volatile if any of those facilities has an upset. Back in May there was a one-day spike in gasoline basis of more than 50 cents/gallon after Joliet had an operating upset so don’t be surprised if there are bigger swings this week if the facility doesn’t come back online quickly.

Moving in the opposite direction, California basis values are heading the opposite direction with the transition to August scheduling pressuring CARBOB differentials in LA and San Francisco to their biggest discounts to prompt RBOB futures in more than 18 months. Gasoline imports into PADD 5 have held well above average levels over the past 2 months, which has more than offset the loss of the P66 Rodeo refinery’s output after it completed its conversion to RD production, in another sign of how growing refining capacity in China and other Asian countries may become more influential to the US. California regulators may also pat themselves on the back that their new plans to force refineries to report their gross profit monthly, in addition to the rules requiring all bulk trades in the state be reported must be driving the lower gasoline differentials, assuming they figure out what a basis differential is.

Meanwhile, California’s Carbon Allowance values have tumbled to their lowest levels in a year after a CARB presentation last week suggested the agency would be delaying long-anticipated tightening of the Cap and Trade program until 2026.

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

Pivotal Week For Price Action
Market TalkTuesday, Jul 16 2024

The Sell-Off In Energy Markets Continues, With Refined Products Reaching Their Lowest Levels In A Month Early In Tuesday’s Session

The sell-off in energy markets continues, with refined products reaching their lowest levels in a month early in Tuesday’s session. Reports of slowing growth in China, the world’s largest oil purchaser, is getting much of the credit for the slide in prices so far this week, although that doesn’t do much to explain why refined products are outpacing the drop in crude.

ULSD futures are leading the early move lower, trading down a nickel on the day, and marking a 19 cent drop since July 4th. There’s not much in the way of technical support for ULSD, so don’t be surprised if this sell-off continues to pick up steam.

With today’s slide, RBOB futures are down 17 cents from where they were trading on July 4th, and are just a couple of cents from testing their 200-day moving average. Should that support break, it looks like there’s a good chance to test the June lows around $2.29.

Physical markets are not offering any strength to the futures market with all 6 of the major cash markets for diesel across the US trading at a discount to ULSD futures, while only 1 gasoline market is trading at a premium to RBOB futures. That combination of weakness in futures and cash markets is going to be troubling for refiners who are seeing margins reduce during what is traditionally a strong time of year.

The EIA highlighted the energy trade between the US and Mexico in a report Monday, showing that despite so many claims of energy independence from Mexican officials, the actual amount of refined fuels and natural gas bought from the US continues to increase. That’s good news for many US refiners who have become more dependent on Mexican purchases to find a home for their output.

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