The Choppy Action Continues For Energy Prices

Market TalkTuesday, Jan 10 2023
Pivotal Week For Price Action

The choppy action continues for energy prices that are attempting another modest rally after some big back and forth swings in Monday’s session. Fundamentally, the case for prices bottoming is getting stronger as lingering supply issues coincide with demand picking up both domestically and abroad. Technically, the energy complex remains stuck in neutral, with a wide range for prices to swing inside of without creating a new trend.

The DOE’s monthly market report will be due out later this morning. The DOE rejected the first round of offers made to bring some oil back to the SPR, after the record-setting drawdown last year. Terms of the offers weren’t disclosed, but the apparent lack of competitive interest for just 3 million barrels, compared to the draw-down of over 220 million barrels over the past year, suggests that the refill may take a very long time.  

The Russian owned refinery in Sicily will be sold to a consortium including trading house Trafigura, which should allow the facility to continue operating – and exporting products to the US. 

Multiple Brazilian refineries were reportedly threatened during the failed coup attempt this week, but state refiner Petrobras says the facilities were able to repel the protesters and continue to operate normally. 

Meanwhile, US refiners continue to race to repair facilities damaged in the Christmas blizzard before the annual demand restart catches the system short on supplies again. A double digit percentage drop in demand during the last week of the year softened the blow of one of the top 5 refinery disruptions ever, but now as drivers get back on the road, restart delays continue to create tighter-than-normal markets around large parts of the US.

The Suncor facility near Denver is still the only plant in the US that’s confirmed it will be offline for multiple months following the storm, but smaller issues at facilities from the Midwest to the Gulf Coast continue to linger, which is starting to cause supply allocations in places you’d not expect to see them in January otherwise. Cenovus energy said Monday that its plant near St Louis is still only operating at about 2/3 capacity due to the storm, while its Borger TX facility will need another week to get back up to full rates.

East Texas is also seeing unusually tight supply as the Shreveport refinery continues to struggle to get back up to full production following local water and electricity supply disruptions, coinciding with the start of a 2-month turnaround at the Delek facility in Tyler. The largest refineries along the gulf coast seem to be back up and running, which is keeping this from being a widespread disruption, but others may be forced to change their maintenance plans, which could keep supplies tighter than normal throughout the winter. 

RIN prices continue their recovery rally this week, with D6 values back in the mid $1.70s, having earned back most of the value lost following the EPA’s quota proposal for the next few years. D4 values meanwhile have stalled out, putting the two different types of credits just 1-2 cents apart, which is a far cry from the 10-20 cent spreads we’ve been accustomed to for years. 

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

Market Talk Update 01.10.2023

News & Views

View All
Pivotal Week For Price Action
Market TalkFriday, Jun 9 2023

Refined Products Bounce Back And Forth Across The Break-Even Line To Start Friday’s Trading

The choppy action continues for energy markets with refined products bouncing back and forth across the break-even line to start Friday’s trading after some big swings Thursday.

RBOB futures led the rollercoaster ride Thursday, trading up 4 cents in the early morning hours, only to see those gains turn into 10 cent losses mid-morning, and then erasing most of those losses in the early afternoon following an ENT report of unplanned maintenance at the largest refinery on the East Coast.  

The selling portion of the ride was blamed on a combination of an increase in jobless claims, and the disruptive impacts of the Canadian wildfires on the major population centers along the East Coast. While air traffic has been disrupted, so far there are not any reports of delays in ship traffic around the New York Harbor, and the strong basis and time spreads we’ve seen in NY have been easing this week, so it appears that this event is more concerning to the demand side of the equation than supply. 

From a technical perspective, it’s not surprising to see this type of back-and-forth action as most petroleum contracts look to be stuck in neutral territory on the charts, which encourages trading programs to sell as prices get towards the top end of a range, and buy when it gets to the low end. 

The Atlantic Hurricane season is off to a quiet start with no tropical development expected over the next week, but NOAA did issue an El Nino advisory Thursday that suggests the warm-water pattern in the Pacific could reach “supersized” levels and create all sorts of disruptive events. Perhaps most notable in the report is that forecasters don’t believe this year’s El Nino will have the same dampening impact on Atlantic hurricanes due to record warm temperatures in the water. Here’s a brief recap in case you missed the most memorable El Nino from 25 years ago. 

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

Pivotal Week For Price Action
Market TalkThursday, Jun 8 2023

Gasoline Futures Rally Despite Inventory Builds, Increased Throughput

Gasoline futures led another strong rally in the energy complex Wednesday and continued marching higher overnight before pulling back to near break-even levels around 7:45am central.

The RBOB contract has now wiped out the post-Memorial Day selloff, and erased the losses from the contract roll to July, setting up another test of the May highs at $2.73. If that resistance breaks, there’s a good chance we see another run at the $2.90 level, but if it holds we are probably still stuck in a sideways pattern as we move through the summer months.  West Coast gasoline prices meanwhile have reached a 3-month high as surging basis values compound the move in futures. 

The rally came despite healthy inventory builds for refined products and strong refinery runs across all 5 PADDs reported last week, with traders (or their algorithms) appearing to focus instead on healthy demand estimates in the DOE’s weekly status report. Gasoline also saw healthy exports last week, while diesel shipments overseas continued their decline which has helped keep downward pressure on diesel prices, which is essentially the polar opposite of what we were experiencing a year ago.

Lies, damned Lies and statistics:  PADD 3 refinery utilization hit 98.8% of the official capacity figure last week, which would mark a 5 year high, except the numbers are wrong. The DOE still isn’t including recent capacity additions of almost 300mb/day in those stats, so the actual figure is about 3% lower. Don’t worry though, the lack of accurate data probably isn’t intentional. The DOE recently announced it was suspending data collection for some of its monthly reports as the agency is still struggling to overcome the IT Systems failure they experienced a year ago. Add this to the realization that the official crude production and petroleum demand figures have been incorrect due to a lack of clarity surrounding condensate production that comes along with oil output.   

Speaking of which, the official US Oil output figure surged to the highest levels since the COVID lockdowns began more than 3 years ago last week. No word from the EIA if this means actual production increased, or if they’ve just changed the way they’re reporting the molecules coming out of the ground.

Irving Oil released a statement highlighting a strategic review of the company, that could include selling the business that’s been held by the Irving family for nearly 100 years. The Irving Refinery in New Brunswick is Canada’s largest at 300mb/day and is the largest importer of fuels into the northeastern US. Critics are arguing that the review is an attempt to politicize Canada’s Clean Fuel Regulation that could weigh on the refinery’s profitability when it goes into full effect in July or could simply incentivize the facility to send more product to the US.

RIN values saw their first bounce in a couple of weeks, with both D6 and D4 values climbing back above the $1.40 mark after their recent slide from the mid $1.50s. We’re still 6 days away from the EPA’s deadline to issue the final RFS ruling for the next couple of years.

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

Pivotal Week For Price Action
Market TalkWednesday, Jun 7 2023

Energy Prices Fluctuate: Chinese Imports Surge, Saudi Arabia Cuts Output and Buys Golf

Energy prices continue their back-and-forth trading, starting Wednesday’s session with modest gains, after a round of selling Tuesday wiped out the Saudi output cut bounce. 

A surge in China’s imports of crude oil and natural gas seem to be the catalyst for the early move higher, even though weak export activity from the world’s largest fuel buyer suggests the global economy is still struggling. 

New tactic?  Saudi Arabia’s plan to voluntarily cut oil production by another 1 million barrels/day failed to sustain a rally in oil prices to start the week, so they bought the PGA tour

The EIA’s monthly Short Term Energy Outlook raised its price forecast for oil, citing the Saudi cuts, and OPEC’s commitment to extend current production restrictions through 2024. The increase in prices comes despite reducing the forecast for US fuel consumption, as GDP growth projections continue to decline from previous estimates. 

The report included a special article on diesel consumption, and its changing relationship with economic activity that does a good job of explaining why diesel prices are $2/gallon cheaper today than they were a year ago.   

The API reported healthy builds in refined product inventories last week, with distillates up 4.5 million barrels while gasoline stocks were up 2.4 million barrels in the wake of Memorial Day. Crude inventories declined by 1.7 million barrels on the week. The DOE’s weekly report is due out at its normal time this morning. 

We’re still waiting on the EPA’s final ruling on the Renewable Fuel Standard for the next few years, which is due a week from today, but another Reuters article suggests that eRINs will not be included in this round of making up the rules.

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