Shockwave Sent Through Energy Arena

Market TalkThursday, Oct 22 2020
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Weak demand estimates reported by the DOE sent a shockwave through the energy arena Wednesday, pushing refined product futures to their lowest levels in two weeks, and some cash prices to their lowest levels in five months. All talk and no action from Washington on a stimulus bill to try and prop up the economy, which does not seem to be helping the sentiment for either energy or equity markets, as an attempt at a recovery bounce overnight has already fallen flat. 

U.S. gasoline demand reached an 18 week low according to the DOE’s weekly estimate, and gasoline prices in many markets followed suit, reaching their lowest levels in about the same time-frame.   

Gasoline prices in the NYH, LA and Group 3 spot markets all reached their lowest levels since early May during Wednesday’s sell-off, and are threatening further losses after the overnight bounce has fizzled in the early going. It’s starting to feel like a move back below $1 for gasoline is inevitable as the seasonal demand slowdown is just beginning, with more run cuts seeming to be the only option for many refiners that might prevent that next move lower.

Diesel demand also saw a large decrease on the week, but unlike gasoline, that figure started from a much higher level and remains above what we saw for most of the summer.  Diesel prices were also hit hard during Wednesday’s sell-off, but still have more room to fall before threatening the low end of their sideways range. 

Refinery runs were reduced across all 5 PADDs last week, as the lingering effects from Hurricane Delta and fall maintenance were both in play. In normal years we’d expect to see fall maintenance peak around this time, and then see refinery runs climb steadily through the end of the year.  With this year being anything but normal, the next few weeks will bring an interesting showdown between the seasonal patterns and a weak margin environment.

Q3 earnings reports are highlighting just how challenging the operating environment is for refiners, and why more run cuts may be likely over the next several months. This morning, Valero and Neste both reported operating losses in their traditional refining segments for the quarter, while their renewable divisions continued to see increasing profits.   

The plight of refiners led a group of Senators to ask the EPA to waive the planned increase in renewable volume obligations for 2021, to help those companies deal with the pandemic, and avoid excessive costs for unreachable targets caused by the weak demand environment. RIN prices have surged to multi-year highs in recent days thanks to stronger crop prices and last month’s ruling on restricting refinery waivers.  We’ll see today if the request sparks a pullback, or is shrugged off given the bigger fish that need frying in Washington these days.

Hurricane Epsilon blew up into a major Hurricane in the past 24 hours – far exceeding earlier forecasts – but is expected to stay out to sea and not threaten land. The system being tracked in the Caribbean is given 30% odds of developing by the NHC, but should not impact the U.S. other than perhaps dumping some rain on south Florida.

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

TACenergy MarketTalk 102220

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Unsurprisingly the CFTC reported a 6.8% increase in money manager net positions in WTI futures last week as speculative bettors piled on their bullish bets. While $100 oil is being shoutedfromeveryrooftop, we’ve yet to see that conviction on the charts: open interest on WTI futures is far below that of the last ~7 years.

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

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The Energy Bulls Are On The Run This Morning, Lead By Heating And Crude Oil Futures

The energy bulls are on the run this morning, lead by heating and crude oil futures. The November HO contract is trading ~7.5 cents per gallon (2.3%) higher while WTI is bumped $1.24 per barrel (1.3%) so far in pre-market trading. Their gasoline counterpart is rallying in sympathy with .3% gains to start the day.

The October contracts for both RBOB and HO expire today, and while trading action looks to be pretty tame so far, it isn’t a rare occurrence to see some big price swings on expiring contracts as traders look to close their positions. It should be noted that the only physical market pricing still pricing their product off of October futures, while the rest of the nation already switched to the November contract over the last week or so.

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

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Gasoline And Crude Oil Futures Are All Trading Between .5% And .8% Lower To Start The Day

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There isn’t much in the way of news this morning with most still citing the expectation for tight global supply, inflation and interest rates, and production cuts by OPEC+.

As reported by the Department of Energy yesterday, refinery runs dropped in all PADDs, except for PADD 3, as we plug along into the fall turnaround season. Crude oil inventories drew down last week, despite lower runs and exports, and increased imports, likely due to the crude oil “adjustment” the EIA uses to reconcile any missing barrels from their calculated estimates.

Diesel remains tight in the US, particularly in PADD 5 (West Coast + Nevada, Arizona) but stockpiles are climbing back towards their 5-year seasonal range. It unsurprising to see a spike in ULSD imports to the region since both Los Angeles and San Francisco spot markets are trading at 50+ cent premiums to the NYMEX. We’ve yet to see such relief on the gasoline side of the barrel, and we likely won’t until the market switches to a higher RVP.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.