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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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