The Energy Bulls Are On The Ropes Once Again To Start The Week
The energy bulls are on the ropes once again to start the week, with refined product prices touching 6 week lows, WTI struggling to hold onto the $80 mark, and charts continuing to suggest that lower prices may be ahead. Seasonal influences with driving slowing down and harvest activity ending also tend to work against product prices this time of year, and a warm fall has reduced concerns of a cold snap depleting natural gas supplies and forcing a run on diesel.
While the outlook for futures seems to be getting more bearish by the day, physical markets across the country are telling a much different story with pockets of tight supply for both gasoline and diesel continuing to challenge suppliers who can no longer rely on long haul trucking to help heal the situation.
Tighter than normal gasoline supplies along much of the East Coast, and ample supplies along the Gulf Coast have widened the spread for RBOB gasoline prices between the two markets to a two year high north of $.16/gallon. Colonial linespace values for gasoline have followed suit, also reaching a new 2 year high at 3 cents/gallon Friday. A steeply backwardated forward curve in the NYH seems to be the only thing keeping a lid on those premiums as prices will drop about a nickel in the time it takes to get space on the line, until when it will actually deliver at the end of it.
Adding to the extreme backwardation in the region, ethanol prices in the NYH jumped back to the $4/gallon level Friday, and LA spots are following close behind. West Coast gasoline values meanwhile continue to push into the stratosphere as refiners are still struggling to make up for the numerous disruptions we’ve seen in the past 2 months and deal with the long term reality that the state is going to require billions more in investment to continue operating.
Diesel supplies meanwhile are tight across the Southwestern US with markets from El Paso to Phoenix seeing the largest rack spreads since SNOVID shut down every refinery in Texas last February.
The weekly commitments of traders report is delayed in the US until today due to Veteran’s day, but we did get a look at ICE contracts where Brent crude saw money managers liquidating length for a 4th straight week as prices retreated from 7 year highs. Gasoil (European’s version of ULSD) contracts meanwhile saw a slight increase in net length despite a large jump in new short positions added during the week, suggesting the big money funds aren’t throwing the towel in on higher priced energy contracts just yet.
Baker Hughes reported a net increase of 4 oil rigs drilling in the US last week as producers continue their slow recovery despite high prices. Most notable in last week’s report was a drop of 5 rigs in New Mexico and an increase of 10 in Texas, suggesting Permian producers may be moving away from Federal land in NM in favor of private lands in TX, based on the campaign promises of the President to stop drilling on public land. In reality however, the Biden administration is on pace to approve more drilling permits than his predecessor as high prices prove once again to be more influential than political leanings.
Click here to download a PDF of today's TACenergy Market Talk.
Latest Posts
The Sell-Off Continues In Energy Markets, RBOB Gasoline Futures Are Now Down Nearly 13 Cents In The Past Two Days
Week 15 - US DOE Inventory Recap
Prices To Lease Space On Colonial’s Main Gasoline Line Continue To Rally This Week
Equity Markets Have Been Pulling Back Sharply In Recent Days As Inflation And Trade Concerns Inject A Sense Of Reality Into Stocks
Social Media
News & Views
View All
The Sell-Off Continues In Energy Markets, RBOB Gasoline Futures Are Now Down Nearly 13 Cents In The Past Two Days
The sell-off continues in energy markets. RBOB gasoline futures are now down nearly 13 cents in the past two days, and have fallen 16 cents from a week ago, leading to questions about whether or not we’ve seen the seasonal peak in gasoline prices. ULSD futures are also coming under heavy selling pressure, dropping 15 cents so far this week and are trading at their lowest level since January 3rd.
The drop on the weekly chart certainly takes away the upside momentum for gasoline that still favored a run at the $3 mark just a few days ago, but the longer term up-trend that helped propel a 90-cent increase since mid-December is still intact as long as prices stay above the $2.60 mark for the next week. If diesel prices break below $2.50 there’s a strong possibility that we see another 30 cent price drop in the next couple of weeks.
An unwind of long positions after Iran’s attack on Israel was swatted out of the sky without further escalation (so far anyway) and reports that Russia is resuming refinery runs, both seeming to be contributing factors to the sharp pullback in prices.
Along with the uncertainty about where the next attacks may or may not occur, and if they will have any meaningful impact on supply, come no shortage of rumors about potential SPR releases or how OPEC might respond to the crisis. The only thing that’s certain at this point, is that there’s much more spare capacity for both oil production and refining now than there was 2 years ago, which seems to be helping keep a lid on prices despite so much tension.
In addition, for those that remember the chaos in oil markets 50 years ago sparked by similar events in and around Israel, read this note from the NY Times on why things are different this time around.
The DOE’s weekly status report was largely ignored in the midst of the big sell-off Wednesday, with few noteworthy items in the report.
Diesel demand did see a strong recovery from last week’s throwaway figure that proves the vulnerability of the weekly estimates, particularly the week after a holiday, but that did nothing to slow the sell-off in ULSD futures.
Perhaps the biggest next of the week was that the agency made its seasonal changes to nameplate refining capacity as facilities emerged from their spring maintenance.
PADD 2 saw an increase of 36mb/day, and PADD 3 increased by 72mb/day, both of which set new records for regional capacity. PADD 5 meanwhile continued its slow-motion decline, losing another 30mb/day of capacity as California’s war of attrition against the industry continues. It’s worth noting that given the glacial pace of EIA reporting on the topic, we’re unlikely to see the impact of Rodeo’s conversion in the official numbers until next year.
Speaking of which, if you believe the PADD 5 diesel chart below that suggests the region is running out of the fuel, when in fact there’s an excess in most local markets, you haven’t been paying attention. Gasoline inventories on the West Coast however do appear consistent with reality as less refining output and a lack of resupply options both continue to create headaches for suppliers.
Week 15 - US DOE Inventory Recap
Prices To Lease Space On Colonial’s Main Gasoline Line Continue To Rally This Week
Energy markets are sliding lower again to start Wednesday’s trading as demand concerns and weaker stock markets around the world seem to be outweighing any supply concerns for the time being.
Rumors continue to swirl about an “imminent” response by Israel to Iran’s attacks, but so far, no news seems to be taken as good news in the hopes that further escalation can be avoided, even as tensions near the Red Sea and Strait of Hormuz continue to simmer.
Prices to lease space on Colonial’s main gasoline line continue to rally this week, trading north of 11 cents/gallon as Gulf Coast producers still struggle to find outlets for their production, despite a healthy export market. Gulf Coast CBOB is trading at discounts of around 34 cents to futures, while Gulf Coast RBOB is trading around a 16-cent discount, which gives shippers room to pay up for the linespace and still deliver into the East Coast markets at a profit.
Back to reality, or just the start of more volatility? California CARBOB basis values have dropped back to “only” 40 cent premiums to RBOB futures this week, as multiple flaring events at California refineries don’t appear to have impacted supply. The state has been an island for fuel supplies for many years as its boutique grades prevent imports from neighboring states, and now add the conversion of the P66 Rodeo refinery to renewable diesel production and the pending changes to try and cap refinery profits, and it’s easier to understand why these markets are increasingly vulnerable to supply shocks and price spikes on gasoline.
RIN prices continue to fall this week, touching 44 cents/RIN for D4 and D6 values Tuesday, their lowest level in 6 weeks and just about a nickel above a 4-year low. While the sharp drop in RIN and LCFS values has caused several biodiesel and Renewable Diesel producers to either shut down or limit production, the growth in RIN generation continues thanks to projects like the Rodeo refinery conversion, making the supply in RINs still outpace the demand set by the Renewable Fuel Standard by a wide margin.
The API reported draws in refined products, 2.5 million barrels for gasoline and 427,000 barrels for distillates, while crude oil stocks had an estimated build of more than 4 million barrels. The DOE’s weekly report is due out at its normal time this morning.
Click here to download a PDF of today's TACenergy Market Talk.