Stock Markets Around The World Are Tumbling

Market TalkThursday, Feb 24 2022
Pivotal Week For Price Action

Oil prices surged north of $100, and several RBOB and ULSD contracts traded north of $3/gallon overnight, up nearly 20 cents/gallon so far this morning, after a full-on Russian assault of Ukraine. Stock markets around the world are tumbling, as solutions to this conflict seem to all come with a high level of economic and/or human damage.  

More sanctions have already been promised by the US and allied countries, and Ukraine has requested that Turkey close off the Black Sea straits, which would block Russian warships, and roughly 2 million barrels/day of oil shipments. 

So, how high can prices go now?  The charts show a pretty strong band of resistance for crude oil around the $110 range, which repelled rallies in 2011, 2012 and 2013, prior to prices collapsing late in 2014.  For refined products there’s a wider range between $3.20-$3.40 that acted as a price ceiling during those years, that should at least act as a stopping point if this rally continues. If for some reason prices break through those chart layers, then we’d target the 2008 highs. That said, the best cure for high prices is high prices, and this latest spike may end up forcing prices lower later this year by forcing drivers off the road and travelers to reconsider their European vacations. 

As the charts below show, the US does import oil and refined products from Russia, but the relatively small fraction of the country’s declining import demand should be replaceable and most likely swapped with barrels that would otherwise go to a sanctions-resistant buyer like China.

While the war in Ukraine will no doubt dominate headlines, the pipeline formerly known as Plantation was closed Wednesday to investigate a possible leak in a suburb of Atlanta.  While there are no reported connections between the situations, the timing is certainly a harsh reminder that Russian hackers took the nearby Colonial pipeline offline for almost a week last year, and that new cyber-attacks should be expected if the new cold war continues to escalate. The winter storm sweeping the eastern half of the country may delay the repairs on the plantation line, but it’s also keeping many drivers off the road so it may not have as much of an impact on regional supplies if it can come back online in a day or two.

While the 7-8% increases in oil and refined product futures are obviously a big deal, they pale in comparison to natural gas prices in European markets that are up roughly 30% on the day so far.  As has been widely reported over the past few months in the runup to this conflict, Europe gets roughly 40% of its natural gas supplies from Russia. The EIA this week highlighted how the US, Qatar and Russia account for 70% of all European LNG imports, but the unfortunate reality is there simply is not capacity currently to replace the Russian supplies. 

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

Market Talk 2.24.2022

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Pivotal Week For Price Action
Market TalkThursday, Mar 28 2024

Energy Markets Are Ticking Modestly Higher Heading Into The Easter Weekend With Crude Oil Prices Leading The Way Up About $1.25/Barrel Early Thursday Morning

Energy markets are ticking modestly higher heading into the Easter Weekend with crude oil prices leading the way up about $1.25/barrel early Thursday morning, while gasoline prices are up around 2.5 cents and ULSD futures are about a penny.

Today is the last trading day for April HO and RBOB futures, an unusually early expiration due to the month ending on a holiday weekend. None of the pricing agencies will be active tomorrow since the NYMEX and ICE contracts are completely shut, so most rack prices published tonight will carry through Monday.

Gasoline inventories broke from tradition and snapped a 7 week decline as Gulf Coast supplies increased, more than offsetting the declines in PADDs 1, 2 and 5. With gulf coast refiners returning from maintenance and cranking out summer grade gasoline, the race is now officially on to move their excess through the rest of the country before the terminal and retail deadlines in the next two months. While PADD 3 run rates recover, PADD 2 is expected to see rates decline in the coming weeks with 2 Chicago-area refineries scheduled for planned maintenance, just a couple of weeks after BP returned from 7 weeks of unplanned repairs.

Although terminal supplies appear to be ample around the Baltimore area, we have seen linespace values for shipping gasoline on Colonial tick higher in the wake of the tragic bridge collapse as some traders seem to be making a small bet that the lack of supplemental barge resupply may keep inventories tight until the barge traffic can move once again. The only notable threat to refined product supplies is from ethanol barge traffic which will need to be replaced by truck and rail options, but so far that doesn’t seem to be impacting availability at the rack. Colonial did announce that they would delay the closure of its underutilized Baltimore north line segment that was scheduled for April 1 to May 1 out of an “abundance of caution”.

Ethanol inventories reached a 1-year high last week as output continues to hold above the seasonal range as ethanol distillers seem to be betting that expanded use of E15 blends will be enough to offset sluggish gasoline demand. A Bloomberg article this morning also highlights why soybeans are beginning to displace corn in the subsidized food to fuel race.

Flint Hills reported a Tuesday fire at its Corpus Christi West facility Wednesday, although it’s unclear if that event will have a material impact on output after an FCC unit was “stabilized” during the fire. While that facility isn’t connected to Colonial, and thus doesn’t tend to have an impact on USGC spot pricing, it is a key supplier to the San Antonio, Austin and DFW markets, so any downtime may be felt at those racks.

Meanwhile, P66 reported ongoing flaring at its Borger TX refinery due to an unknown cause. That facility narrowly avoided the worst wildfires in state history a few weeks ago but is one of the frequent fliers on the TCEQ program with upsets fairly common in recent years.

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, Mar 27 2024

Most Energy Contracts Are Ticking Lower For A 2nd Day After A Trickle Of Selling Picked Up Steam Tuesday

Most energy contracts are ticking lower for a 2nd day after a trickle of selling picked up steam Tuesday. ULSD futures are down a dime from Monday’s highs and RBOB futures are down 7 cents.

Diesel prices continue to look like the weak link in the energy chain, with futures coming within 1 point of their March lows overnight, setting up a test of the December lows around $2.48 if that resistance breaks down. Despite yesterday’s slide, RBOB futures still look bullish on the weekly charts, with a run towards the $3 mark still looking like a strong possibility in the next month or so.

The API reported crude stocks increased by more than 9 million barrels last week, while distillates were up 531,000 and gasoline stocks continued their seasonal decline falling by 4.4 million barrels. The DOE’s weekly report is due out at its normal time this morning.

RIN values have recovered to their highest levels in 2 months around $.59/RIN for D4 and D6 RINs, even though the recovery rally in corn and soybean prices that had helped lift prices off of the 4 year lows set in February has stalled out. Expectations for more biofuel production to be shut in due to weak economics with lower subsidy values seems to be encouraging the tick higher in recent weeks, although prices are still about $1/RIN lower than this time last year.

Reminder that Friday is one of only 3 annual holidays in which the Nymex is completely shut, so no prices will be published, but it’s not a federal holiday in the US so banks will be open.

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