Senate Election Results Impact On Financial Markets

Market TalkWednesday, Jan 6 2021
Market Talk Updates - Social Header

We’ve had a busy couple of weeks’ worth of price action so far in 2021, and we’re just starting our third day of trading. Energy prices have gone from the cusp of a technical breakout to the upside, to a huge reversal that threatened a price collapse, and back again to 10 month highs in just two days. Prices are starting Wednesday’s session with more of a wait-and-see approach after being unable to sustain their rally overnight. OPEC-inspired whiplash is getting most of the credit for the big swings in energy markets, while the Senate election results look like they’ll be the big story today that will likely have broader impacts on financial markets.

Saudi Arabia surprised pretty much everyone Tuesday by announcing it would unilaterally cut its oil output by one million barrels/day, which would allow Russia and other countries to increase their output, without flooding the global market as demand continues to sputter. While the move shocked the markets, which responded with a furious rally in oil and refined product futures, it seems to be in some ways the Kingdom making good on the promise it made in the fall to do whatever is necessary to stabilize the global oil markets and teach speculators a lesson. This move also sets the stage for some interesting political theatre once demand returns, as the Saudi’s will no doubt remember those that supported them in this effort, and probably even more those that did not.

Not buying it? As the basis charts below show, differentials for physical prices in most regional U.S. spot markets dropped on the day as cash markets seem to think the current supply/demand realities are not as optimistic as the futures market action suggests. That hesitation by the big physical traders could be enough to stall the momentum in futures, just as they look like they’re breaking technical resistance and poised for another rally. The API report in the afternoon gave more reason for fundamentalists to have doubts about the recent run-up as both gasoline and diesel saw large very large inventory builds last week (5.5 and 7.1 million barrels respectively) but that report seems to have been largely lost in the shuffle of the bigger news stories. The DOE’s report will be out at its normal time today, but you’ll be forgiven if you miss it while watching the election coverage. 

Early results appear to show that Democrats will win both seats in Georgia, flipping control of the Senate, and giving the party control of Congress and the White House for at least two years. There will surely be some selling as control of the legislative and executive branches will no longer be split, assuming the current calls hold, but some other reports suggest we could see some risk assets rally as this change could also make new fiscal stimulus measures easier to sign into law.

For energy markets in particular, a flip in the Senate will almost certainly mean more aggressive laws to combat climate change, which in some cases may mean tighter restrictions on traditional oil producers and refiners. That is not necessarily bearish for prices however as more restrictions tend to mean less supply (and less investment) which could end up driving an extended rally in prices if demand recovers this year.

The reaction in RIN markets today may give us an early indication of how traders in the refined product space view the changing of the guard in the Senate.  RIN prices have already been surging lately, in sympathy with corn and soybean prices that are reaching multi-year highs largely due to concerns over South American grain exports, and this latest bit of news could encourage another strong rally if the market believes the new congress will push for increased renewable mandates. Then again, the RIN market is notoriously volatile, and there could be some buy the rumor sell the news once the current bout of short covering is over. 

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

TACenergy MarketTalk 101621

News & Views

View All
Market Talk Updates - Social Header
Market TalkFriday, Jul 19 2024

Summertime-Friday-Apathy Trade Influencing Energy Markets

Energy markets are treading water to start the day as the Summertime-Friday-Apathy trade seems to be influencing markets around the world in the early going. RBOB futures are trying for a 3rd straight day of gains to wipe out the losses we saw to start the week, while ULSD futures continue to look like the weak link, trading lower for a 2nd day and down nearly 3 cents for the week.

Bad to worse: Exxon’s Joliet refinery remains offline with reports that repairs may take through the end of the month. On top of that long delay in restoring power to the facility, ENT reported this morning that the facility has leaked hydrogen fluoride acid gas, which is a dangerous and controversial chemical used in alkylation units. Chicago basis values continue to rally because of the extended downtime, with RBOB differentials approaching a 50-cent premium to futures, which sets wholesale prices just below the $3 mark, while ULSD has gone from the weakest in the country a month ago to the strongest today. In a sign of how soft the diesel market is over most of the US, however, the premium commanded in a distressed market is still only 2 cents above prompt futures.

The 135mb Calcasieu Refinery near Lake Charles LA has been taken offline this morning after a nearby power substation went out, and early reports suggest repairs will take about a week. There is no word yet if that power substation issue has any impacts on the nearby Citgo Lake Charles or P66 Westlake refineries.

Two tanker ships collided and caught fire off the coast of Singapore this morning. One ship was a VLCC which is the largest tanker in the world capable of carrying around 2 million barrels. The other was a smaller ship carrying “only” 300,000 barrels (roughly 12 million gallons) of naphtha. The area is known for vessels in the “dark fleet” swapping products offshore to avoid sanctions, so a collision isn’t too surprising as the vessels regularly come alongside one another, and this shouldn’t disrupt other ships from transiting the area.

That’s (not) a surprise: European auditors have determined the bloc’s green hydrogen goals are unattainable despite billions of dollars of investment, and are based on “political will” rather than analysis. Also (not) surprising, the ambitious plans to build a “next-gen” hydrogen-powered refinery near Tulsa have been delayed.

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

Market Talk Updates - Social Header
Market TalkThursday, Jul 18 2024

Refined Products Stanch Bleeding Despite Inventory Builds And Demand Slump

Refined products are trading slightly lower to start Thursday after they stopped the bleeding in Wednesday’s session, bouncing more than 2 cents on the day for both RBOB and ULSD, despite healthy inventory builds reported by the DOE along with a large slump in gasoline demand.

Refinery runs are still above average across the board but were pulled in PADD 3 due to the short-term impacts of Beryl. The Gulf Coast region is still outpacing the previous two years and sitting at the top end of its 5-year range as refiners in the region play an interesting game of chicken with margins, betting that someone else’s facility will end up being forced to cut rates before theirs.

Speaking of which, Exxon Joliet was reportedly still offline for a 3rd straight day following weekend thunderstorms that disrupted power to the area. Chicago RBOB basis jumped by another dime during Wednesday’s session as a result of that downtime. Still, that move is fairly pedestrian (so far) in comparison to some of the wild swings we’ve come to expect from the Windy City. IIR via Reuters reports that the facility will be offline for a week.

LA CARBOB differentials are moving in the opposite direction meanwhile as some unlucky seller(s) appear to be stuck long and wrong as gasoline stocks in PADD 5 reach their highest level since February, and held above the 5-year seasonal range for a 4th consecutive week. The 30-cent discount to August RBOB marks the biggest discount to futures since 2022.

The EIA Wednesday also highlighted its forecast for rapid growth in “Other” biofuels production like SAF and Renewable Naptha and Propane, as those producers capable of making SAF instead of RD can add an additional $.75/gallon of federal credits when the Clean Fuels Producer’s Credit takes hold next year. The agency doesn’t break out the products between the various “Other” renewable fuels, but the total projected output of 50 mb/day would amount to roughly 2% of total Jet Fuel production if it was all turned to SAF, which of course it won’t as the other products come along for the ride similar to traditional refining processes.

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

Pivotal Week For Price Action