The 200-day Moving Average Is Back In Play This Week With ULSD Breaking Above That Resistance After It Repelled Friday’s Rally

Market TalkTuesday, Nov 14 2023
Pivotal Week For Price Action

After moving lower through the overnight session, energy futures jumped alongside equities following the October CPI reading that came in below most estimates, adding hope that the FED is done raising rates to combat inflation. The recovery rally of the past 2-days has put charts back in a more neutral footing, easing the oversold condition that had developed during the drop to multi-month lows.  

Of course, that drop in energy prices was a key contributor to the flat CPI reading for the month, with fuel oil prices leading the slide down 21%, while gasoline prices were down 5.3%. Excluding food and energy, the total reading was up .2% on the month and 4% on the year.  

The 200-day moving average is back in play this week with ULSD breaking above that resistance after it repelled Friday’s rally, while WTI is currently stuck right on it. If the contracts can hold above that level there’s a good chance, they could soon break above the bearish trend they’ve been in since Mid-October, while a failure here suggests we’ll see new lows before year-end.

The IEA’s monthly oil market report echoed the bullish demand outlook OPEC reported yesterday, with the agency revising its global consumption estimates higher, primarily due to record oil demand in China. The IEA suggests that China accounts for 75% of the total world demand growth this year, which is estimated at 2.4 million barrels/day, and despite headwinds in developed nations, the agency believes total global oil demand will hit a record in 2024. That increase in demand isn’t great news for everyone however, as the agency notes China’s surge in petrochemical production is putting pressure on other refiners in Europe and Asia.

The good news for consumers is that oil supplies are also poised to hit a record next year, with gains in the US, Brazil and Guyana leading the increases. While Guyana is benefitting from off-shore gushers, its next-door neighbor Venezuela is not expected to see dramatic increases in its output despite the recent easing of sanctions, as it will take years of investment to get that country’s production infrastructure rebuilt. 

While the IEA is bullish on US oil output, the EIA is predicting lower US shale production for a 2nd straight month in its monthly drilling report. The Permian Basin, which accounts for nearly half of all US oil output, continues to see modest gains, while gas-heavy shale basins like the Appalachia and Anadarko are dragging oil output lower according to these estimates. While drilling activity has slowed onshore, US Off-shore production continues to increase this year and is approaching record highs set prior to the pandemic, as the larger-project-producers are acting more confident in the long-term viability of those wells, even as the viability of the Federal lease program is very much in doubt.

Big speculators were adding new bets on lower energy prices last week, once again showing their tendency to jump on the bandwagon a couple of weeks late. WTI, Brent, ULSD and Gasoil all saw a large influx of new short positions, just in time for prices to hit a 3-month low Wednesday and then bounce. RBOB futures were once again moving opposite of the rest of the complex with heavy short covering as the funds (who appear much smarter in retrospect) took profits after prices hit their lows for the year. 

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Market Talk Update 11.14.2023

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Pivotal Week For Price Action
Market TalkFriday, Apr 12 2024

Charts Continue To Favor A Push Towards The $3 Mark For Gasoline, While Diesel Prices May Need To Be Dragged Along For The Ride

Energy prices are rallying once again with the expected Iranian attack on Israel over the weekend appearing to be the catalyst for the move. RBOB gasoline futures are leading the way once again, trading up more than a nickel on the day to reach a fresh 7 month high at $2.8280. Charts continue to favor a push towards the $3 mark for gasoline, while diesel prices may need to be dragged along for the ride.

So far it appears that Motiva Pt. Arthur is the only refinery that experienced a noteworthy upset from the storms that swept across the southern half of the country this week. Those storms also delayed the first round of the Masters, which matters more to most traders this week than the refinery upset.

Chevron’s El Segundo refinery in the LA-area reported an unplanned flaring event Thursday, but the big moves once again came from the San Francisco spot market that saw diesel prices rally sharply to 25 cent premiums to futures. The Bay Area now commands the highest prices for spot gasoline and diesel as the conversion of 1 out of the 4 remaining refineries to renewable output is not-surprisingly creating disruptions in the supply chain.

RIN values dropped back below the 50-cent mark, after the recovery rally ran out of steam last week. The EPA is facing numerous legal challenges on the RFS and other policies, and now half of the US states are challenging the agency’s new rule restricting soot emissions. That lack of clarity on what the law actually is or may be is having widespread impacts on environmental credits around the world and makes enforcement of such policies a bit of a joke. Speaking of which, the EPA did just fine a South Carolina company $2.8 million and require that it buy and retire 9 million RINs for improper reporting from 2013-2019. The cost of those RINs now is about 1/3 of what it was this time last year, so slow playing the process definitely appears to have paid off in this case.

The IEA continues to do its best to downplay global demand for petroleum, once again reducing its economic outlook in its Monthly Report even though the EIA and OPEC continue to show growth, and the IEA’s own data shows “Robust” activity in the first quarter of the year. The IEA has come under fire from US lawmakers for changing its priorities from promoting energy security, to becoming a cheerleader for energy transition at the expense of reality.

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

Pivotal Week For Price Action
Market TalkThursday, Apr 11 2024

Diesel Prices Continue To Be The Weak Link In The Energy Chain

Energy prices are ticking modestly lower this morning, despite warnings from the US that an Iranian attack on Israeli interest is “imminent” and reports of weather induced refinery outages, as demand fears seem to be outweighing supply fears temporarily. Diesel prices continue to be the weak link in the energy chain with both the DOE and OPEC reports giving the diesel bears reason to believe lower prices are coming.

The March PPI report showed a lower inflation reading for producers than the Consumer Price Index report, leading to an immediate bounce in equity futures after the big wave of selling we saw yesterday. To put the CPI impact in perspective, a week ago Fed Fund futures were pricing in an 80% chance of an interest rate cut by the FED’s July 31 meeting, and today those odds have shrunk to 40% according to the CME’s FedWatch tool.

OPEC’s monthly oil market report held a steady outlook for economic growth and oil demand from last month’s report, noting the healthy momentum of economic activity in the US. The cartel’s outlook also highlighted significant product stock increases last month that weighed heavily on refining margins, particularly for diesel. Given the US focus on ULSD futures that are deliverable on the East Coast, which continues to have relatively tight supply for diesel, it’s easy to overlook how quickly Asian markets have gotten long on distillates unless of course you’re struggling through the slog of excess supply in numerous west coast markets these days. The OPEC report noted this in a few different ways, including a 33% decline in Chinese product exports as the region simply no longer needs its excess. The cartel’s oil output held steady during March with only small changes among the countries as they hold to their output cut agreements.

If you believe the DOE’s diesel demand estimates, there’s reason to be concerned about domestic consumption after a 2nd straight week of big declines. The current estimate below 3 million barrels/day is something we typically only see the week after Christmas when many businesses shut their doors. We know the DOE’s figures are missing about 5% of total demand due to Renewable Diesel not being included in the weekly stats, and it’s common to see a drop the week after a holiday, but to lose more than a million barrels/day of consumption in just 2 weeks will keep some refiners on edge.

Most PADDs continue to follow their seasonal trends on gasoline with 1 and 2 still in their normal draw down period, while PADD 3 is rebuilding inventories faster than normal following the transition to summer grade products. That rapid influx of inventory in PADD 3 despite robust export activity helps explain the spike in premiums to ship barrels north on Colonial over the past 2 weeks. Gasoline also saw a sizeable drop in its weekly demand estimate, but given the holiday hangover effect, and the fact that it’s in line with the past 2 years, there’s not as much to be concerned about with that figure. While most of the activity happens in PADDs 1-3, the biggest disconnect is coming in PADDs 4 and 5, with gasoline prices in some Colorado markets being sold 50 cents or more below futures, while prices in some California markets are approaching 90 cents above futures.

Severe weather sweeping across the southern US knocked several units offline at Motiva’s Pt Arthur plant (the country’s largest refinery) Wednesday, and it seems likely that Louisiana refineries will see some disruption from the storm that spawned tornadoes close to the Mississippi River refining hub. So far cash markets haven’t reacted much, but they’ll probably need more time to see what damage may have occurred.

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