The Fall Rally In Energy Prices Officially Ended Thursday After Huge Reversal In Morning Trade

Market TalkFriday, Nov 5 2021
Pivotal Week For Price Action

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.

Market Talk Update 11.05.21

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Pivotal Week For Price Action
Market TalkThursday, Feb 29 2024

It's Another Mixed Start For Energy Futures This Morning After Refined Products Saw Some Heavy Selling Wednesday

It's another mixed start for energy futures this morning after refined products saw some heavy selling Wednesday. Both gasoline and diesel prices dropped 7.5-8.5 cents yesterday despite a rather mundane inventory report. The larger-than-expected build in crude oil inventories (+4.2 million barrels) was the only headline value of note, netting WTI futures a paltry 6-cent per barrel gain on the day.

The energy markets seem to be holding their breath for this morning’s release of the Personal Consumption Expenditures (PCE) data from the Bureau of Economic Analysis (BEA). The price index is the Fed’s preferred inflation monitor and has the potential to impact how the central bank moves forward with interest rates.

Nationwide refinery runs are still below their 5-year average with utilization across all PADDs well below 90%. While PADD 3 production crossed its 5-year average, it’s important to note that measure includes the “Snovid” shutdown of 2021 and throughput is still below the previous two years with utilization at 81%.

We will have to wait until next week to see if the FCC and SRU shutdowns at Flint Hills’ Corpus Christi refinery will have a material impact on the regions refining totals. Detail on the filing can be found on the Texas Commission on Environmental Quality website.

Update: the PCE data shows a decrease in US inflation to 2.4%, increasing the likelihood of a rate cut later this year. Energy futures continue drifting, unfazed.

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
Pivotal Week For Price Action
Market TalkWednesday, Feb 28 2024

It’s Red Across The Board For Energy Prices So Far This Morning With The ‘Big Three’ Contracts All Trading Lower To Start The Day

It’s red across the board for energy prices so far this morning with the ‘big three’ contracts (RBOB, HO, WTI) all trading lower to start the day. Headlines are pointing to the rise in crude oil inventories as the reason for this morning’s pullback, but refined product futures are leading the way lower, each trading down 1% so far, while the crude oil benchmark is only down around .3%.

The American Petroleum Institute published their national inventory figures yesterday afternoon, estimating an 8+ million-barrel build in crude oil inventory across the country. Gasoline and diesel stocks are estimated to have dropped by 3.2 and .5 million barrels last week, respectively. The official report from the Department of Energy is due out at its regular time this morning (9:30 CST).

OPEC’n’friends are rumored to be considering extending their voluntary production cuts into Q2 of this year in an effort to buoy market prices. These output reductions, reaching back to late 2022, are aimed at paring back global supply by about 2.2 million barrels per day and maintaining a price floor. On the flip side, knowledge of the suspended-yet-available production capacity and record US output is keeping a lid on prices.

How long can they keep it up? While the cartel’s de facto leader (Saudi Arabia) may be financially robust enough to sustain itself through reduced output indefinitely, that isn’t the case for other member countries. Late last year Angola announced it will be leaving OPEC, freeing itself to produce and market its oil as it wishes. This marks the fourth membership suspension over the past decade (Indonesia 2016, Qatar 2019, Ecuador 2020).

The spot price for Henry Hub natural gas hit a record low, exchanging hands for an average of $1.50 per MMBtu yesterday. A rise in production over the course of 2023 and above average temperatures this winter have pressured the benchmark to a price not seen in its 27-year history, much to Russia’s chagrin.

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