The Fall Rally In Energy Prices Officially Ended Thursday After Huge Reversal In Morning Trade
The fall rally in energy prices officially ended Thursday after a huge reversal in morning trade wiped out 7 cent gains for refined products, leading to more heavy selling the afternoon. The complex is attempting to find a bottom this morning with modest gains, but the trend lines were broken this week, and the charts continue to favor lower prices in the weeks ahead.
In addition to the bearish technical outlook, the big physical players seem to be figuratively buying this selloff and literally not buying it as basis values in most US cash markets dropped for a 2nd straight day, adding to the severe losses in futures.
If you buy gasoline in the North East, you’re probably wondering why your prices went up yesterday even when RBOB dropped a nickel. Ethanol is the culprit as the price spike went completely off the rails yesterday, with values in the NYH area surging more than 50 cents on the day, after already jumping more than 40 cents this week. That jump in prices was enough to override the drop in gasoline, despite the 90/10 ratio between the two components. The forward curve chart below shows how incredibly steep the backwardation has become thanks to increased production, and a profound inability to transport that product, with $1/gallon separating prices in Chicago over just a few months, and New York values are nearly $1 more expensive than that today.
OPEC & Friends made no changes to their current output agreement Thursday, and will meet again in the month. This lack of change was credited with both yesterday’s price pullback, and the rally overnight, which tells you how much those headlines are worth. While the White House wasted no time in expressing their discontent with the cartel’s decision to only add 400,000 barrels/day of oil every month to global supplies, the Saudi Energy Minister clearly seemed to be growing weary of the criticism: “Oil is not the problem,” Saudi Energy Minister Prince Abdulaziz bin Salman told reporters. “The problem is the energy complex is going through havoc and hell.”
Another one bites the dust: Shell announced yet another refinery closure, with plans to shutter part of its German refining complex in the coming years, which would take roughly 150mb/day of capacity offline. P66 meanwhile announced it would begin repairs to its Belle Chasse facility that was swamped by Hurricane Ida, although it’s still not clear whether or not that plant will ever operate as a refinery again.
US payrolls increased by 531k in October, and the previous two months estimates were revised sharply higher in today’s jobs report, knocking both the official (U3) and real (U6) unemployment rates down a couple of tenths. Equity markets and the US Dollar jumped following the report which was stronger than most predicted, and energy futures seemed to not care much. This report could be another double edged sword however as the FED has made it clear this week that they’re looking for stronger employment as a signal before raising rates next year.
Click here to download a PDF of today's TACenergy Market Talk.
Latest Posts
Energy Markets Rally Again Thursday After A Choppy Wednesday Session
Week 16 - US DOE Inventory Recap
Energy Markets Trading Quietly In The Red As Ethanol Prices Rally To Five-Month High
The Struggle For Renewable Producers Continues As A Rapid Influx Of Supply And Crashing Credit Prices Make Biodiesel
Social Media
News & Views
View All
Energy Markets Rally Again Thursday After A Choppy Wednesday Session
Energy markets are trying to rally again Thursday after a choppy Wednesday session. RBOB gasoline futures are leading the push higher, on pace for a 3rd consecutive day of gains after finding a temporary floor Tuesday and have added 12 cents from those lows.
Equity markets are pointing sharply lower after a weak Q1 GDP estimate which seems to have contributed to a pullback in product prices over the past few minutes, but don’t be surprised if the “bad news is good news” low interest rate junkies start jumping in later on.
The DOE’s weekly report showed sluggish demand for gasoline and diesel, but inventory levels in most markets continue to follow their typical seasonal trends. Refinery runs held fairly steady last week with crude inputs down slightly but total gross throughputs up slightly as most facilities are now back online from a busy spring maintenance season and geared up for peak demand this summer.
Propane and propylene exports spiked to a record high north of 2.3 million barrels/day last week, which demonstrates both the US’s growing influence on global product markets, and the steady shift towards “other” products besides traditional gasoline and diesel in the level of importance for refiners.
The EIA acknowledged this morning that its weak diesel consumption estimates reflected the switch to Renewable Diesel on the West Coast, although they did not provide any timeline for when that data will be included in the weekly survey. The agency acknowledged that more than 4% of the total US consumption is now a combination of RD and Biodiesel, and that number is expected to continue to grow this year. This morning’s note also suggested that weak manufacturing activity was to blame for the sluggish diesel demand across the US, while other reports suggest the freight recession continued through Q1 of this year, which is also contributing to the big shift from tight diesel markets to oversupplied in several regions.
Valero kicked off the Q1 earnings releases for refiners with solid net income of $1.2 billion that’s a far cry from the spectacular earnings north of $3 billion in the first quarter of 2023. The refining sector made $1.7 billion, down from $4.1 billion last year. That is a pattern that should be expected from other refiners as well as the industry returns to a more normal market after 2 unbelievable years. You wouldn’t guess it by looking at stock prices for refiners though, as they continue to trade near record highs despite the more modest earnings.
Another pattern we’re likely to see continue with other refiners is that Renewable earnings were down, despite a big increase in production as lower subsidies like RINs and LCFS credit values sting producers that rely on those to compete with traditional products. Valero’s SAF conversion project at its Diamond Green joint venture is progressing ahead of schedule and will give the company optionality to flip between RD and SAF depending on how the economics of those two products shakes out this year. Valero also shows part of why refiners continue to disappear in California, with operating expenses for its West Coast segment nearly 2X that of the other regions it operates in.
Week 16 - US DOE Inventory Recap
Energy Markets Trading Quietly In The Red As Ethanol Prices Rally To Five-Month High
Energy markets are trading quietly in the red to start Wednesday’s session after a healthy bounce Tuesday afternoon suggested the Israel-Iran-linked liquidation had finally run its course.
There are reports of more Ukrainian strikes on Russian energy assets overnight, but the sources are sketchy so far, and the market doesn’t seem to be reacting as if this is legitimate news.
Ethanol prices have rallied to a 5-month high this week as corn and other grain prices have rallied after the latest crop progress update highlighted risks to farmers this year, lower grain export expectations from Ukraine, and the approval of E15 blends this summer despite the fact it pollutes more. The rally in grain and renewables prices has also helped RIN values find a bid after it looked like they were about to test their 4-year lows last week.
The API reported small changes in refined product inventories last week, with gasoline stocks down about 600,000, while distillates were up 724,000. Crude oil inventories increased by 3.2 million barrels according to the industry-group estimates. The DOE’s weekly report is due out at its normal time this morning.
Total reported another upset at its Port Arthur refinery that’s been a frequent flier on the TCEQ alerts since the January deep freeze knocked it offline and damaged multiple operating units. This latest upset seems minor as the un-named unit impacted was returned to normal operations in under an hour. Gulf Coast basis markets have shrugged off most reports of refinery upsets this year as the region remains well supplied, and it’s unlikely we’ll see any impact from this news.
California conversely reacted in a big way to reports of an upset at Chevron’s El Segundo refinery outside of LA, with CARBOB basis values jumping by more than a dime. Energy News Today continued to show its value by reporting the upset before the flaring notice was even reported to area regulators, proving once again it’s ahead of the curve on refinery-related events. Another industry news outlet meanwhile struggled just to remember where the country’s largest diesel seller is located.
Click here to download a PDF of today's TACenergy Market Talk