Spring Breakout Rally Sprung For Energy Prices

Market TalkFriday, Feb 15 2019
Energy Futures Taking A Breather

The Spring breakout rally has sprung for energy prices with futures moving higher for a 4th straight day, showing strong momentum after technical resistance was broken earlier in the week. Most contracts are trading at fresh 3-month highs this morning, and the charts suggest there’s plenty of more room to run to the upside.

Strength in equity markets continues to at least appear to be helping energy prices find a bid as the correlation between the two asset classes remains strong, and the US/China trade talks appear to be progressing.

Unplanned Refinery maintenance, whether based in mechanics or economics, seems to be the other major theme helping prices rise with at least a dozen different events reported in the past 2 weeks of record setting cold, and record setting weakness in gasoline margins for some parts of the country. Yesterday, PBF announced in an earnings call that it too would be accelerating its maintenance schedule in an attempt to slow down now in order to be running full strength when margins are expected to improve later this year.

For a reminder on the seasonal nature of energy prices in general, and gasoline prices in particular, look up any of Walter Zimmerman’s writings on the subject. This 5-year old interview published by the CSP daily news seems particularly relevant as we wonder how much higher prices can run this spring.

“Gasoline price trends are extremely seasonal. Averaging out the last 30 years of spot gasoline futures (from leaded, to unleaded, to MTBE, to RBOB), one finds that the average winter-to-spring price move has been a 57% increase in spot contract value. By Q4, everyone is typically bearish on gasoline because prices have been under downward pressure since Q2. Over the years we have observed that the more severely gasoline prices are pushed lower into Q4, the more vibrant the rally into Q2.”

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Pivotal Week For Price Action
Market TalkThursday, Feb 29 2024

It's Another Mixed Start For Energy Futures This Morning After Refined Products Saw Some Heavy Selling Wednesday

It's another mixed start for energy futures this morning after refined products saw some heavy selling Wednesday. Both gasoline and diesel prices dropped 7.5-8.5 cents yesterday despite a rather mundane inventory report. The larger-than-expected build in crude oil inventories (+4.2 million barrels) was the only headline value of note, netting WTI futures a paltry 6-cent per barrel gain on the day.

The energy markets seem to be holding their breath for this morning’s release of the Personal Consumption Expenditures (PCE) data from the Bureau of Economic Analysis (BEA). The price index is the Fed’s preferred inflation monitor and has the potential to impact how the central bank moves forward with interest rates.

Nationwide refinery runs are still below their 5-year average with utilization across all PADDs well below 90%. While PADD 3 production crossed its 5-year average, it’s important to note that measure includes the “Snovid” shutdown of 2021 and throughput is still below the previous two years with utilization at 81%.

We will have to wait until next week to see if the FCC and SRU shutdowns at Flint Hills’ Corpus Christi refinery will have a material impact on the regions refining totals. Detail on the filing can be found on the Texas Commission on Environmental Quality website.

Update: the PCE data shows a decrease in US inflation to 2.4%, increasing the likelihood of a rate cut later this year. Energy futures continue drifting, unfazed.

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

Pivotal Week For Price Action
Pivotal Week For Price Action
Market TalkWednesday, Feb 28 2024

It’s Red Across The Board For Energy Prices So Far This Morning With The ‘Big Three’ Contracts All Trading Lower To Start The Day

It’s red across the board for energy prices so far this morning with the ‘big three’ contracts (RBOB, HO, WTI) all trading lower to start the day. Headlines are pointing to the rise in crude oil inventories as the reason for this morning’s pullback, but refined product futures are leading the way lower, each trading down 1% so far, while the crude oil benchmark is only down around .3%.

The American Petroleum Institute published their national inventory figures yesterday afternoon, estimating an 8+ million-barrel build in crude oil inventory across the country. Gasoline and diesel stocks are estimated to have dropped by 3.2 and .5 million barrels last week, respectively. The official report from the Department of Energy is due out at its regular time this morning (9:30 CST).

OPEC’n’friends are rumored to be considering extending their voluntary production cuts into Q2 of this year in an effort to buoy market prices. These output reductions, reaching back to late 2022, are aimed at paring back global supply by about 2.2 million barrels per day and maintaining a price floor. On the flip side, knowledge of the suspended-yet-available production capacity and record US output is keeping a lid on prices.

How long can they keep it up? While the cartel’s de facto leader (Saudi Arabia) may be financially robust enough to sustain itself through reduced output indefinitely, that isn’t the case for other member countries. Late last year Angola announced it will be leaving OPEC, freeing itself to produce and market its oil as it wishes. This marks the fourth membership suspension over the past decade (Indonesia 2016, Qatar 2019, Ecuador 2020).

The spot price for Henry Hub natural gas hit a record low, exchanging hands for an average of $1.50 per MMBtu yesterday. A rise in production over the course of 2023 and above average temperatures this winter have pressured the benchmark to a price not seen in its 27-year history, much to Russia’s chagrin.

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