The Bulls Took Back Control Of Energy Futures

Market TalkFriday, Oct 8 2021
Pivotal Week For Price Action

The bulls took back control of energy futures Thursday, with refined products bouncing 10 cents off of their early morning lows, and trading up to within a few cents of the 7 year highs set earlier in the week overnight. That bounce is a reminder that supply shortages rarely have short term solutions, and the squeeze we’re seeing in many parts of the world may well get worse this winter before it gets better.  From a technical perspective, all that matters short term is whether or not the highs set earlier this week can hold resistance. If they break, there’s room to run on the charts, and we could soon be talking about crude pushing the $90/barrel mark, and products adding another 20-30 cents/gallon.

The good news is natural Gas prices around the world have pulled back sharply from record highs this week. The not so good news, is that pullback came after Russia suggested it can help alleviate the shortages…for a nominal fee of course, and as China has ordered coal miners to increase output. When you stop and think about it, it’s actually pretty wild that in major producing nations (like the US & Russia) natural gas is still being burned off because there’s more supply than capacity to get that fuel to the market, while other parts of the world are struggling to keep the lights on because they don’t have enough supply. 

Speaking of which, the IEA published a report suggesting that methane emissions from flaring and leaks is the low hanging fruit of the climate agenda, something that can make a meaningful improvement on emissions, in a short amount of time and in a cost effective manner.

Add another supply bottleneck to the growing list: Spot ethanol prices in the New York Harbor have surged to $2.90/gallon this week as logistical bottlenecks continue to hamper the movement of mandated fuels.  Meanwhile, it was another busy day in the RIN arena, with D6 values dropping 12 cents in the early morning, only to bounce 10 cents by the afternoon.  Then again, considering RBOB prices also bounced by 10 cents from their overnight lows, the RIN movement seems relatively tame. 

That doesn’t make cents: The shutdown of Kinder Morgan’s pipeline FKA Plantation finally made national news Thursday as restart efforts were delayed until the weekend. The reporter(s) seemed to get their dollars and cents mixed up however, when suggesting that NYH gasoline prices were up 50 cents on the day, trading $7.50/gallon over futures, implying outright prices nearing $10/gallon. Don’t rush out and fill up your Rubbermaid totes with gasoline! In reality, NYH spots are trading 6-7 cents/gallon over futures and those diffs were up 50 points.  The shutdown has barely caused a ripple in basis markets, nor has it caused space on Colonial to start trading at a positive value, suggesting traders expect supplies will return to normal in a few days. Don’t blame the reporters however, with most of the world focused on a shortage of (natural) gas supplies, it’s easy to get the two mixed up. 

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

Market Talk Update 10.08.21

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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.