Saudi Arabia Lowered Its Official Prices To Asian Customers Tuesday, The First Price Cut In 7-Months

Market TalkWednesday, Dec 6 2023
Pivotal Week For Price Action

Gasoline futures are trading at their lowest levels of the year, while WTI and ULSD futures are touching fresh 5-month lows this morning as signs of building supply and slowing demand both seem to be hitting at the same time, while the charts are suggesting we’re on the verge of another technical sell-off if the buyers don’t step in soon. 

Saudi Arabia lowered its official prices to Asian customers Tuesday, the first price cut in 7- months, just in time for Vladimir Putin’s visit to the Kingdom, which could be a market wild card that could send prices higher if a new output cut agreement is reached, or plunging if the two disagree like we saw back in 2014 and 2020. Meanwhile the API report inventory builds across the board in the US last week, with gasoline stocks up 2.8 million barrels, while distillates grew by 890,000 barrels and crude oil built by 594,000. The build in crude oil is pretty small, but considering reports that US oil exports are at an all-time high, the fact inventories aren’t dropping is seen as a bearish figure, supported by softer time spreads moving further into contango this week. The EIA’s weekly report is due out at its normal time.

Adding to the downside pressure in refined products this week is word that Kuwait’s Al Zour refinery has not only recovered from several upsets in November, but has brought all units fully online for the first time and gradually approaching its capacity of 615mb/day. That facility will compete directly with both Chinese and US refineries for European buyers and is playing a big role in the relatively serene price action in futures this year, compared to when the world was scrambling to find replacements for Russian supplies 18-months ago.

Exxon and other producers pulled out of Venezuela 16-years ago after Hugo Chaves decided to nationalize the oil industry and impose a retroactive tax on the companies who were developing the country’s fields. Since then, Exxon’s focus on neighboring Guyana has led it to become one of the fastest growing producers in the world, only to see a new referendum from Venezuela put that production at risk.    

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Market Talk Update 12.06.2023

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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.