The Choppy Trading Continues In Energy Markets

Market TalkTuesday, Jul 5 2022
Pivotal Week For Price Action

The choppy trading continues in energy markets with another round of selling welcoming US traders back after the holiday, after a big Friday rally managed to salvage the bull market, temporarily at least. For now the energy complex seems trapped in a conundrum with Supply shortages keeping prices elevated while recession fears preventing them from running rampant. 

ULSD futures look the weakest on the charts, still trading below the weekly trend-line that carried them from the $2 level in December despite Friday’s big bounce. Peg last week’s low just above $3.81 as must-hold support to prevent a slide to $3.50.  RBOB prices look less bearish after Friday’s big recovery rally, but are still teetering on the edge of their weekly trend-line, with a slide to $3 a possibility if the buyers don’t step back in soon.

Money managers were liquidating long positions in ULSD, Gasoil and Brent contracts last week, but adding to positions in RBOB and WTI. A large number of new short bets were placed on RBOB contracts, suggesting that funds are starting to see the potential for an end to the gasoline price rally, although there are still nearly 8 to 1 bets on higher prices vs lower prices in the large speculator category. Open interest across the petroleum complex remains at 5+ year lows.

Baker Hughes reported a net increase of 1 oil rig drilling in the US last week, while natural gas rigs declined by 4. That marks the largest weekly decline in Natural Gas rigs since August of last year, and is a bit surprising given the renewed interest in US natural gas to try and help ease the energy supply crunch in Europe and other parts of the world. Speaking of which, a Bloomberg article today highlights why the global natural gas trade is more important than ever

Bonnie made landfall in central America as a tropical storm, but has reformed as a Hurricane in the Eastern Pacific, adding another odd phenomenon to the weather history books.  Speaking of which, tropical storm Colin came and went off the Carolina Coast over the weekend, surprising the National Hurricane Center which had been tracking 3 other systems, but not that one until it was already formed. No other storms are on the NHC radar for development in the next 5 days, which is good news for Gulf Coast refiners who are running at their hottest pace in 3 years.

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Market Talk Update 7.05.22

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Market TalkFriday, Jul 19 2024

Summertime-Friday-Apathy Trade Influencing Energy Markets

Energy markets are treading water to start the day as the Summertime-Friday-Apathy trade seems to be influencing markets around the world in the early going. RBOB futures are trying for a 3rd straight day of gains to wipe out the losses we saw to start the week, while ULSD futures continue to look like the weak link, trading lower for a 2nd day and down nearly 3 cents for the week.

Bad to worse: Exxon’s Joliet refinery remains offline with reports that repairs may take through the end of the month. On top of that long delay in restoring power to the facility, ENT reported this morning that the facility has leaked hydrogen fluoride acid gas, which is a dangerous and controversial chemical used in alkylation units. Chicago basis values continue to rally because of the extended downtime, with RBOB differentials approaching a 50-cent premium to futures, which sets wholesale prices just below the $3 mark, while ULSD has gone from the weakest in the country a month ago to the strongest today. In a sign of how soft the diesel market is over most of the US, however, the premium commanded in a distressed market is still only 2 cents above prompt futures.

The 135mb Calcasieu Refinery near Lake Charles LA has been taken offline this morning after a nearby power substation went out, and early reports suggest repairs will take about a week. There is no word yet if that power substation issue has any impacts on the nearby Citgo Lake Charles or P66 Westlake refineries.

Two tanker ships collided and caught fire off the coast of Singapore this morning. One ship was a VLCC which is the largest tanker in the world capable of carrying around 2 million barrels. The other was a smaller ship carrying “only” 300,000 barrels (roughly 12 million gallons) of naphtha. The area is known for vessels in the “dark fleet” swapping products offshore to avoid sanctions, so a collision isn’t too surprising as the vessels regularly come alongside one another, and this shouldn’t disrupt other ships from transiting the area.

That’s (not) a surprise: European auditors have determined the bloc’s green hydrogen goals are unattainable despite billions of dollars of investment, and are based on “political will” rather than analysis. Also (not) surprising, the ambitious plans to build a “next-gen” hydrogen-powered refinery near Tulsa have been delayed.

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

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Market TalkThursday, Jul 18 2024

Refined Products Stanch Bleeding Despite Inventory Builds And Demand Slump

Refined products are trading slightly lower to start Thursday after they stopped the bleeding in Wednesday’s session, bouncing more than 2 cents on the day for both RBOB and ULSD, despite healthy inventory builds reported by the DOE along with a large slump in gasoline demand.

Refinery runs are still above average across the board but were pulled in PADD 3 due to the short-term impacts of Beryl. The Gulf Coast region is still outpacing the previous two years and sitting at the top end of its 5-year range as refiners in the region play an interesting game of chicken with margins, betting that someone else’s facility will end up being forced to cut rates before theirs.

Speaking of which, Exxon Joliet was reportedly still offline for a 3rd straight day following weekend thunderstorms that disrupted power to the area. Chicago RBOB basis jumped by another dime during Wednesday’s session as a result of that downtime. Still, that move is fairly pedestrian (so far) in comparison to some of the wild swings we’ve come to expect from the Windy City. IIR via Reuters reports that the facility will be offline for a week.

LA CARBOB differentials are moving in the opposite direction meanwhile as some unlucky seller(s) appear to be stuck long and wrong as gasoline stocks in PADD 5 reach their highest level since February, and held above the 5-year seasonal range for a 4th consecutive week. The 30-cent discount to August RBOB marks the biggest discount to futures since 2022.

The EIA Wednesday also highlighted its forecast for rapid growth in “Other” biofuels production like SAF and Renewable Naptha and Propane, as those producers capable of making SAF instead of RD can add an additional $.75/gallon of federal credits when the Clean Fuels Producer’s Credit takes hold next year. The agency doesn’t break out the products between the various “Other” renewable fuels, but the total projected output of 50 mb/day would amount to roughly 2% of total Jet Fuel production if it was all turned to SAF, which of course it won’t as the other products come along for the ride similar to traditional refining processes.

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

Pivotal Week For Price Action