Spring Breakout Rally Continues For Energy Futures
The spring breakout rally continues for energy futures as fundamental and financial factors all appear to be aligning short term to send oil & gasoline prices to fresh 4 month highs. OPEC+ production cuts, and a rash of unplanned refinery & terminal issues along with stronger equities and a weaker dollar are getting some of the credit for the rally. From a chart perspective, the window appears open for further upside over the next few weeks.
The fire at the Deer Park terminal facility along the Houston ship channel has spread from 2 tanks to 8, and is expected to continue burning for at least another day. While the pictures are dramatic, the impact to the market will be minimal as long as the operations of nearby refineries and shipping lanes remain unaffected.
The 30 day correlation between WTI & the S&P 500 is holding around 90%, and both are moving higher again this morning. Volatility indices for WTI and the S&P 500 (aka the VIX, aka the “fear index”) have reached 6 month lows this week as the climb higher seems to have soothed some of the concerns over a pending recession.
The US Dollar has been softening of late as well, which tends to get credit for stronger commodity prices, even though energy and currencies have had a weak correlation for more than a year. More calls for the FED to lower interest rates to stave off a recession seem to be driving the dollar weakness – and likely some of the equity strength - as the FOMC starts a 2 day meeting today. The CME’s Fedwatch tool shows traders are giving just a 1.3% chance of an interest rate cut at this meeting, and a zero percent chance of an increase, meaning tomorrow’s announcement will be mainly important for signals on what might come later in the year. Traders so far are pricing in a 24% probability that interest rates get cut by at least 25 points before year end.
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Week 48 - US DOE Inventory Recap
The API Reported Gasoline Inventories Dropped By 898,000 Barrels Last Week
Values For Space On Colonial’s Main Gasoline Line Continue To Drop This Week
After Another Black Friday Selloff Pushed Energy Futures Sharply Lower In Last Week’s Holiday-Shortened Trading
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Week 48 - US DOE Inventory Recap
The API Reported Gasoline Inventories Dropped By 898,000 Barrels Last Week
Gasoline and oil prices are attempting to rally for a 2nd straight day, a day ahead of the delayed OPEC meeting, while diesel prices are slipping back into the red following Tuesday’s strong showing.
The API reported gasoline inventories dropped by 898,000 barrels last week, crude inventories declined by 817,000 barrels while distillates saw an increase of 2.8 million barrels. Those inventory stats help explain the early increases for RBOB and WTI while ULSD is trading lower. The DOE’s weekly report is due out at its normal time this morning.
A severe storm on the Black Sea is disrupting roughly 2% of the world’s daily oil output and is getting some credit for the bounce in futures, although early reports suggest that this will be a short-lived event.
Chevron reported that its Richmond CA refinery was back online after a power outage Monday night. San Francisco spot diesel basis values rallied more than a dime Tuesday after a big drop on Monday following the news of that refinery being knocked offline.
Just a few days after Scotland’s only refinery announced it would close in 2025, Exxon touted its newest refinery expansion project in the UK Tuesday, with a video detailing how it was ramping up diesel production to reduce imports and possibly allow for SAF production down the road at its Fawley facility.
Ethanol prices continue to slump this week, reaching a 2-year low despite the bounce in gasoline prices as corn values dropped to a 3-year low, and the White House appears to be delaying efforts to shift to E15 in an election year.
Click here to download a PDF of today's TACenergy Market Talk.
Values For Space On Colonial’s Main Gasoline Line Continue To Drop This Week
The petroleum complex continues to search for a price floor with relatively quiet price action this week suggesting some traders are going to wait and see what OPEC and Friends can decide on at their meeting Thursday.
Values for space on Colonial’s main gasoline line continue to drop this week, with trades below 10 cents/gallon after reaching a high north of 18-cents earlier in the month. Softer gasoline prices in New York seems to be driving the slide as the 2 regional refiners who had been down for extended maintenance both return to service. Diesel linespace values continue to hold north of 17-cents/gallon as East Coast stocks are holding at the low end of their seasonal range while Gulf Coast inventories are holding at average levels.
Reversal coming? Yesterday we saw basis values for San Francisco spot diesel plummet to the lowest levels of the year, but then overnight the Chevron refinery in Richmond was forced to shut several units due to a power outage which could cause those differentials to quickly find a bid if the supplier is forced to become a buyer to replace that output.
Money managers continued to reduce the net length held in crude oil contracts, with both Brent and WTI seeing long liquidation and new short positions added last week. Perhaps most notable from the weekly COT report data is that funds are continuing their counter-seasonal bets on higher gasoline prices. The net length held by large speculators for RBOB is now at its highest level since Labor Day, at a time of year when prices tend to drop due to seasonal demand weakness.
Click here to download a PDF of today's TACenergy Market Talk.