Supply Issues Seem To Have Put The Omicron Demand Fears On The Back Burner Temporarily

Market TalkTuesday, Dec 21 2021
Pivotal Week For Price Action

Oil prices have bounced nearly $4/barrel, and refined products by a dime since Monday’s lows as a combination of supply issues seem to have put the Omicron demand fears on the back burner temporarily. 

Part of the bounce is being blamed on Libya declaring force majeure on its oil exports Monday as several of the country’s largest fields were closed by militants ahead of the country’s election, which may or may not happen this week. OPEC has already been struggling to meet its output quotas, compared to pre-COVID when it struggled to keep its members from over-producing, and these shutdowns will only make that issue worse.

European natural gas prices are also soaring this week as cold weather arrives just in time for Russia to remind the world of its supply power by reversing flows on a pipeline that supplies Germany. While the supply crunch in Europe and Asia were often blamed for propelling oil and diesel prices higher earlier in the year, the Reuters chart below shows that US natural gas prices haven’t flinched during this latest price spike, which could be a reflection that LNG exports from the US simply can’t move fast enough to supplement during these winter weather events.

Stock markets are also rallying after 3 days of heavy selling, with plenty of guesses as to why, but little in the way of actual news to support the sudden turnaround. That begs the question for the rest of the week, is this a short term correction or the end of the Omicron fear selloff?  For energy contracts, look to the trend lines once again for the answer, with the weekly charts showing that RBOB needs to climb above $2.15 and ULSD above $2.25 to consider this move anything more than a dead cat bounce.

The EPA announced its new fuel economy standards for passenger vehicles Monday, which it called the most ambitious ever, and would require average an increase from the 2020 record of 25.4mpg to 40mpg by 2026. The plan focuses on model years 2023-2026, and estimates that electric vehicles will need to increase from 7% of the new vehicles produced in 2023 to 17% in 2026, on top of new technology in gasoline engines, in order to reach the standard.

Meanwhile, it looks like the EPA will get another chance to shut down the refinery formerly known as Hovensa, as a new auction has resulted in yet another company planning to attempt to restart the twice bankrupt facility.  

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Market Talk Update 12.21.2021

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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.