The Big Story For Gasoline Cash Markets This Week Is Chicago RBOB Basis Values That Spiked More Than 60 Cents/Gallon

Market TalkWednesday, May 22 2024
Pivotal Week For Price Action

Energy futures are pulling back for a 3rd straight day after reports showed another build in gasoline and crude oil stocks, and the White House pulled another political stunt to try and lower prices in an election year.

The big story for gasoline futures this week was that the department of Energy announced it was shutting down the North East gasoline reserve Tuesday, pitching the plan as a way to keep gasoline prices lower for consumers during the driving season. The reserve was put in place following Superstorm Sandy in 2012 that had some stations in the region out of fuel and/or power for nearly a month. The timing and nature of the release, when prices have already showed signs of peaking for the season, and the US staring down what’s forecast to be the busiest hurricane season of the past 20 years, is questionable at best.

It appears that the DOE’s information arm didn’t get the memo on the release, as the EIA published a note this morning highlighting the threat posed to energy infrastructure by upcoming hurricane season.

If you’re interested in bidding, click here to register before the May 28 deadline, and make sure your vehicle is big enough to fit the 4-million-gallon minimum bid size. For perspective, the 900,000 barrels being offered in Pt Reading NJ (which is attached to the NYH market), represents about 3.5% of total PADD 1B gasoline inventories. It’s unclear if the bidding will be restricted to US companies but don’t be surprised at all if a portion of these barrels head overseas, or simply displace imports.

The big story for gasoline cash markets this week is Chicago RBOB basis values that spiked more than 60 cents/gallon, marking the largest single day increase for any market in the country so far this year. Rumors were swirling that Exxon was forced to buy barrels after a fire at its Joliet refinery over the weekend, after not making any moves Monday, while others noted flaring at the BP whiting refinery as the driver of the runup. If both rumors are true, and 2 of the 3 Chicago-area refineries are dealing with operational upsets at the same time, the region will become dependent on supplies from neighboring markets to make ends meet. PADD 2 refinery runs were holding near record highs before these events, and a rash of storms has kept demand across the region sluggish however, so there is plenty of spare capacity on pipelines that move products north, so it seems unlikely that Tuesday’s spike may be a classic Chicago-being-Chicago knee jerk reaction. So far the DOE hasn’t revised their gasoline reserve sale announcement to claim it was in response to these refinery issues.

Chicago diesel basis did rally a nickel Tuesday, and differentials are up more than 12 cents from a week ago, but those moves pale in comparison to gasoline at the moment, and are still holding the biggest discount to futures of any market in the country.

The API reported a build in gasoline inventories of 2 million barrels, and an increase in crude stocks of just under 2.5 million, while distillate stocks were down slightly about 320,000 barrels. The DOE’s weekly report is due out at its normal time this morning, and then will be delayed next week due to Memorial Day.

Who says it’s political? California’s LCFS values rallied off of 5 year lows this week after state officials announced they were delaying its announcement on how it will change the program that’s been too successful for its own good from March until a few days following the November Presidential election.

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

Market Talk Update 05.22.2024

News & Views

View All
Market Talk Updates - Social Header
Market TalkTuesday, Jun 18 2024

Prices Moving Higher Today As Market Prepares For Juneteenth Holiday

Refined products are ticking higher for a 2nd day, with RBOB gasoline futures hitting their highest levels of the month at $2.46 overnight, while WTI climbed back above the $80 mark for the first time in 3 weeks.

Markets will be mostly closed tomorrow for the Juneteenth holiday. Spot markets won’t be assessed so most U.S. traders will be taking the day off, even though Nymex contracts will trade in the morning. While rack prices can always change, expect most to stay static tonight through Thursday.

Risk-taking appears to be back in style to start the week, with the S&P 500 and Nasdaq both reaching fresh record highs as big tech stocks continue to lead the way, while the DJIA bellwether index remains well off of the record high it set a month ago. The correlation between daily price moves in energy and equity markets has been weak for most of the year, but the enthusiasm of broad buying across asset classes so far this week has the markings of a classic risk-on rally, although it’s noteworthy the moves across the board are modest, suggesting the exuberance may be slightly less irrational than it was during the dot com bubble. We shall see.

While the still unnamed storm in the SW Gulf of Mexico won’t be a direct threat to the U.S. coastlines, it is a very large system that’s bringing rain to large parts of Texas (even DFW is expected to get thunderstorms from this system) and coastal flood warnings are in effect across the entire coastline of the state, stretching east into Louisiana.

There is a 2nd potential system the NHC gives 20% odds of developing in the same area as the current “Potential Cyclone” over the next week, while the other disturbance near the Bahamas is given 20% odds of being named as it heads towards the SE U.S. coast.

Ukraine’s drones continue to hit Russian energy assets, with a fuel export facility at the Azov seaport set ablaze overnight. Those attacks come amidst Ukrainian forces repelling Russia’s latest offensive near Kharkiv now that U.S. weapons have finally arrived, forcing the Russian president to float new peace options and visit military powerhouse North Korea to purchase more arms.

The CFTC reached a $55 million settlement with Trafigura over 3 separate charges the trading house A) manipulated gasoline markets by “misappropriating” material information from a counterparty in Mexico (not named, but believed to be Pemex), B) gamed the Platts Window to boost a trading position in 2017, C) coerced employees into not cooperating with investigations into the company’s manipulative practices by CFTC and other law enforcement.

Trafigura did not admit fault as part of the settlement, but did state the company had “voluntarily undertaken significant steps to enhance its compliance program…” For anyone who watched the games being played in the Platts window over the past two decades, it seems they may have got off easy. This latest settlement comes just a couple of months after the company was forced to pay $127 million in fines over bribery charges and makes you wonder if there are more charges to come.

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

Market Talk Updates - Social Header
Market TalkMonday, Jun 17 2024

CFTC Commitment Of Traders Report Confirmed Short Covering Was Pushing Up Pricing

It’s a quiet start to the week for energy contracts with modest gains of around a penny in the early going for refined products, while crude oil contracts are up less than 50 cents/barrel.

Houthi Rebels continue to attack ships transiting the Red Sea, with the U.S. Navy forced to rescue the crew from 2 different cargo ships that were struck over the past week.

China’s refineries slowed their run rates in May as planned maintenance and weak margins were both cited as contributing to a pullback from the world’s largest oil importer.

The CFTC’s commitment of traders report Friday confirmed that short covering by money managers was most certainly pushing up prices the week prior. WTI saw nearly half of its large speculative short positions bought back in just 1 week, while Brent’s multi-year high short bets were cut by 20%. In total, more than 62,000 crude contracts and 20,000 diesel contracts were repurchased after funds realized their bet that prices would continue sliding after they’d already hit multi-month lows was a mistake. The unwinding of the big speculators’ bets on lower oil prices will no doubt thrill the Saudi Arabian oil minister who famously threatened the “gamblers” back in 2020.

The National Hurricane Center is tracking 2 potential storm systems this week, one in the SW Gulf of Mexico is now given 70% odds of being named, but is expected to move inland over Mexico and not bring a major threat, but will bring thunderstorms to the U.S. Gulf Coast this week. The other system is only given 30% odds of development off of the coast of Georgia or South Carolina and doesn’t appear to be a threat to energy infrastructure.

The EIA published its annual U.S. refining capacity report Friday, which shows operating facilities as of January 1. It finally caught up with the Beaumont facility expansion completed more than 15 months ago, marking the largest growth in U.S. capacity in nearly a decade. Total operable capacity is still below the peak set in 2019 and is expected to drop further as the P66 Rodeo facility was converted this year, and the Lyondell Houston Refinery is once again expected to shut its doors at the end of the year. Since the government’s report is so far delayed, perhaps the most interesting part is the listing of all refineries that have closed since 1990.

Total reported 24 hours of flaring at its Port Arthur, TX refinery over the weekend. The only unit mentioned as a Flare Gas Recovery system so it appears the event won’t have a major impact on operations.

Baker Hughes reported 4 more oil rigs were taken offline in the U.S. last week, bringing the total count to a 2.5-year low at 488. Natural gas rigs were unchanged on the week at 98, the lowest total since October 2021.

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

Market Talk Updates - Social Header
Market TalkFriday, Jun 14 2024

ULSD Futures Leading The Energy Markets Recovery Rally Today With 6 Week High

The recovery rally continues in energy markets with ULSD futures leading the way reaching a 6 week high this morning. If you were one of the money managers who decided to jump on the short-selling bandwagon at the start of June, you’re now underwater by around $5/barrel for crude oil contracts, and 25 cents/gallon for diesel contracts, which appears to be adding upward pressure to the market as that hot money heads for the exits, and is forced to buy out of their losing bets.

The recovery rally in refined products hasn’t done much to help out refiners that are still looking at their worst summer margins since the COVID lockdowns. The margin outlook is even worse for refiners in other parts of the world, particularly in Asia which is dealing with a glut of supply due to a rush of capacity additions in the past 2 years. Singapore announced this week that it was offering carbon tax rebates for its refiners to try and keep them afloat and able to compete with their new competition from China and Kuwait.

The enemy of my enemy: The American Farm Bureau and Corn Growers associations joined the American Petroleum Institute in a lawsuit Thursday challenging the EPA’s vehicle emissions standards. After the Ag and Oil lobbies have spent decades competing with each other for tax incentives and mandates on ethanol and biodiesel blends, they’ve found common ground in fighting the threat of EVs on their market share, with farmers providing the logical argument that rural communities [and tractors] aren’t conducive to EV use. The Renewable Fuel Association meanwhile is promoting its solution: Plug-in electric hybrid flex-fuel vehicles, or PHEFFVs for not-so-short.

The NHC is now giving 50% odds of development for the storm system brewing off of Mexico’s eastern coastline, but even if that system is named it looks like it will head west over land before threatening the U.S. The other system that threatened Florida this week is now making its way up the East Coast, but won’t be a major storm. Florida is still dealing with flash flooding, but so far there are no reports of terminal outages or port disruptions.

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