Slow And Steady Climb In Energy Markets

Market TalkMonday, Nov 23 2020
Market Talk Updates - Social Header

The slow and steady climb higher in energy markets continues Monday morning with diesel prices reaching their highest levels since March, while oil prices are trading at eight week highs. As has been the case for most days during the November rally, optimism driven by progress with COVID vaccines is getting credit for the strength. 


third COVID vaccine has proven to be effective according to reports, and this version produced by AstraZeneca is stable at refrigerator temperatures, which will help avoid some of the logistical hurdles faced by Pfizer’s vaccine.   

Baker Hughes reported five fewer oil rigs working last week, snapping an eight week string of increases. The Permian basin continued to tick higher, adding two rigs last week, while the Cana Woodford (Oklahoma) basin decreased by two, Williston (North Dakota) lost one, and the “other” category that captures activity outside of the largest 14 basins, dropped by four. 

Money managers appear more optimistic about energy prices, increasing their net length across the board last week. Brent contracts led the move with an increase of more than 50,000 total net contracts, split fairly evenly between new long bets, and closing out shorts. The moves in the other NYMEX and ICE contracts were much smaller, and the overall positions remain well below levels we were used to seeing in previous years. Speaking of which, the total open interest for WTI dropped to a new 4.5 year low last week. 

That lack of interest could be explained by new contracts deliverable in the Houston market making the traditional Cushing, OK delivery point less relevant, but that’s not the whole story as Brent open interest continues to hold near two to three year lows. Those two data points combined suggest that the broader financial markets are less focused on oil these days, which could be a sign of the boring markets since June offering fewer opportunities for speculators, or the larger trend from financial institutions being pressured away from traditional fuel sources.

Speaking of which, the U.S. Treasury’s comptroller office submitted a proposed rule last week that would make it illegal for banks to exclude entire industries in their lending.

U.S. refiners are dealing with the devastating combination of poor demand, and poor public opinion forcing them to  increasingly look to renewables as a way forward.  One consequence of this rapidly changing landscape: a new report suggests that China may soon overtake the U.S. as the world’s largest petroleum refiner

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

TACenergy MarketTalk 112320

News & Views

View All
Pivotal Week For Price Action
Market TalkWednesday, Apr 17 2024

Prices To Lease Space On Colonial’s Main Gasoline Line Continue To Rally This Week

Energy markets are sliding lower again to start Wednesday’s trading as demand concerns and weaker stock markets around the world seem to be outweighing any supply concerns for the time being.

Rumors continue to swirl about an “imminent” response by Israel to Iran’s attacks, but so far, no news seems to be taken as good news in the hopes that further escalation can be avoided, even as tensions near the Red Sea and Strait of Hormuz continue to simmer.

Prices to lease space on Colonial’s main gasoline line continue to rally this week, trading north of 11 cents/gallon as Gulf Coast producers still struggle to find outlets for their production, despite a healthy export market. Gulf Coast CBOB is trading at discounts of around 34 cents to futures, while Gulf Coast RBOB is trading around a 16-cent discount, which gives shippers room to pay up for the linespace and still deliver into the East Coast markets at a profit.

Back to reality, or just the start of more volatility? California CARBOB basis values have dropped back to “only” 40 cent premiums to RBOB futures this week, as multiple flaring events at California refineries don’t appear to have impacted supply. The state has been an island for fuel supplies for many years as its boutique grades prevent imports from neighboring states, and now add the conversion of the P66 Rodeo refinery to renewable diesel production and the pending changes to try and cap refinery profits, and it’s easier to understand why these markets are increasingly vulnerable to supply shocks and price spikes on gasoline.

RIN prices continue to fall this week, touching 44 cents/RIN for D4 and D6 values Tuesday, their lowest level in 6 weeks and just about a nickel above a 4-year low. While the sharp drop in RIN and LCFS values has caused several biodiesel and Renewable Diesel producers to either shut down or limit production, the growth in RIN generation continues thanks to projects like the Rodeo refinery conversion, making the supply in RINs still outpace the demand set by the Renewable Fuel Standard by a wide margin.

The API reported draws in refined products, 2.5 million barrels for gasoline and 427,000 barrels for distillates, while crude oil stocks had an estimated build of more than 4 million barrels. The DOE’s weekly report is due out at its normal time this morning.


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

Pivotal Week For Price Action
Market TalkTuesday, Apr 16 2024

Equity Markets Have Been Pulling Back Sharply In Recent Days As Inflation And Trade Concerns Inject A Sense Of Reality Into Stocks

It’s a mixed bag for energy markets to start Tuesday’s session with gasoline prices holding small gains, while oil and diesel prices show small losses as the world anxiously debates what comes next in the conflict, we’re still hoping we don’t have to call a war in the Middle East.

An early sell-off picked up steam Monday morning with refined products down more than a nickel for a few minutes, before reports that Israel was vowing to respond to Iran’s attack seemed to encourage buyers step back in an erase most of the losses for the day.

Equity markets have been pulling back sharply in recent days as inflation and trade concerns inject a sense of reality into stocks that had been flying high earlier in the year. The correlation between gasoline and crude oil prices had been fairly strong for the past couple of months but has since weakened as the weakness in stocks hasn’t yet trickled over into the energy arena. Both asset classes are seeing a tick higher in their volatility (aka Fear) indices this week however, and when fear starts driving the trade, we often see these prices move together.

Diesel has been underperforming the rest of the energy complex for most of the year so far, and those hoping for lower diesel prices got more good news when the Dangote refinery in Nigeria began loading diesel for domestic use Monday, in the latest milestone for the giant project that will have a major influence on Atlantic basin supply. Naturally, local lawmakers are already complaining that the refinery’s prices are too high.

The EIA this morning highlighted the record amount of crude oil China imported in 2023 after reopening the country post-COVID and after completing numerous new refinery builds in the past few years. Russia accounted for the largest increase in shipments to China last year, as China is one of the few countries that doesn’t mind ignoring sanctions. Speaking of which, the US House is expected to take up a new vote this week on sanctioning Chinese imports of Iranian crude, which the EIA notes are often hidden by relabeling the crude to make it appear as if it originated in Malaysia, Oman or the UAE.

We’re just 2 weeks away from the startup of Canada’s long-awaited Transmountain pipeline expansion that will bring roughly 600,000 barrels/day of capacity to the Pacific basin. That new outlet is great news for Canadian producers long restricted by takeaway capacity, and bad news for Midcontinent refiners who have grown accustomed to the discounted Canadian grades. A Bloomberg article Monday noted that Iraq’s Basrah Heavy crude is most likely to be displaced by West Coast US refiners who can now buy much closer to home.

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

Pivotal Week For Price Action
Market TalkMonday, Apr 15 2024

Gasoline And Crude Oil Prices Reached Fresh Multi-Month Highs Friday Morning As News Of The Anticipated Attacks Spread

Buy the rumor, sell the news seems to be the pattern for energy contracts that are heading lower this morning after Iran’s well-telegraphed attack on Israel over the weekend was thwarted by a coalition of air forces and no further escalation has ensued so far.

Gasoline and crude oil prices reached fresh multi-month highs Friday morning as news of the anticipated attacks spread, and those new highs keep the technical outlook pointing higher on the weekly charts, but we’ll need to see a new high set this week or else the argument for the end of the spring rally may begin.

Marathon reported unplanned flaring at the Wilmington section of its Los Angeles area refining complex early this morning, a week after reported issues at the Carson facility, which combined make up the largest refinery in the state. California’s basis values did pull back sharply after a big rally last week, and now we’ll wait to see if this latest upset sends them higher once again.

Money managers continue to act moderately bullish on energy contracts, adding net length across the board last week, even as new short positions were added in most of the contracts.

Perhaps most notable in the COT report last week was a surge in open interest with RBOB gasoline reaching its highest level in 3 years, while Brent crude oil contracts reached their highest levels since the full-scale invasion of Ukraine kicked off more than 2 years ago.

It seems likely that the increased violence around the Middle East, and the attacks on Russian refineries are contributing to the increase in bettors in the energy space, particularly now that margin requirements have returned to more tolerable levels after spiking during the chaotic trading of 2022. This same pattern may also be contributing to the surge in energy company stock prices, even though margins are far below the record-setting levels we saw the prior 2 years.

The big increase in short bets on gasoline last week also suggests that some traders are starting to prepare for the spring peak in prices that often happens in late April or May.

A Reuters report suggests that Russia has been able to repair nearly 1/3 of the refining output that was taken offline due to Ukraine’s drone strikes, bringing the offline capacity to 10% down from 14% at the end of March, but that still means more than 650,000 barrels/day of capacity is offline, roughly the size of the largest refinery in the US.

Baker Hughes reported a drop of 2 oil rigs last week, erasing the increase in the rig count we saw the week before. Natural gas rigs continue to decline, falling by 1 last week to a fresh 2 year low at 109 total for the US. Baker Hughes changed the format of their report a couple of weeks ago, which is still challenging some data providers and analysts who continue to report the last numbers that show up on the old report.

A CNN article over the weekend highlighted the challenges still being faced at the PES refinery outside of Philadelphia nearly 5 years after an explosion knocked that plant offline for good. This type of struggle is one major factor in why some refiners are choosing to convert their facilities to renewables production in recent years, which effectively extends their timeline on any remediation needed if the facility was closed for good.

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