The Wheels Are Off The Energy Bus With Diesel Leading The Way Once Again, Trading Down By More Than 10 Cents

Market TalkWednesday, Oct 4 2023
Pivotal Week For Price Action

The wheels are off the energy bus with diesel leading the way once again, trading down by more than 10 cents in the early going, and now down more than 20 cents for the week. The big slide in ULSD comes after a valiant attempt to erase Tuesday morning’s big losses came up short in the afternoon, in a sign that the bulls may be throwing in the towel.  RBOB futures hit a low of $2.3000 overnight, the lowest level since May 4th

Oil futures are trading down $2/barrel in the early going despite Saudi Arabia confirming its intent to hold voluntary output cuts through year end. The cartel’s leader also noted that it expects global oil demand to continue growing this year and next, and increase by 25% through 2045, which will require investment in all forms of energy. 

Oil traders also seem to be ignoring a 4-million-barrel decline in US inventories reported by the API yesterday, in yet another sign that we may be witnessing money managers bailing out of long positions they’d been steadily accumulating during the rally over the past 3 months. Gasoline inventories saw a build of almost 4 million barrels last week, while distillates saw a small increase of less than 400,000. The EIA’s weekly report is due out at its normal time this morning. 

Adding to the downward pressure on a day when the bears seem to be in control is a report that Russia is already preparing to ease its export restrictions on refined products

For the 2nd time in 3 weeks New England is staring down a tropical storm. Philippe has shifted West over the past 48 hours and is now likely to make landfall in either Maine or Nova Scotia over the weekend based on current projections. The good news is this storm is nowhere near as strong as Lee was in September, the bad news is it seems to be shifting West instead of East like Lee did, which spared the region from most of the potential impact.  While 60 mph winds won’t scare many New Englanders, it will be enough to disrupt vessel traffic for a day or two as it passes, and will bring more heavy rain to the region, which has had plenty over the past month. The storm will also be another headache for workers at Irving’s refinery in St. John NB, which were already delayed in a major maintenance project due to Lee.

Marathon’s Galveston Bay (FKA Texas City) refinery made its seemingly obligatory weekly filing to the TCEQ Tuesday noting an upset at a sulfur recovery unit. That filing came just hours after reports from Energy News Today that the facility had restarted an FCC unit following a fire in early September.

The EIA this morning noted that the US had set a new record for LNG exports in the first half of this year, a figure that should continue to grow in the coming years as new export facilities come online. Monday the agency also highlighted a record in refined product exports, but notably gasoline and diesel fuel exports were both lower on the year as world markets adjusted to the Russia to Europe product flow halt, while a surge in Propane deliveries made up the difference. Those export flows are likely to remain a major story for US refiners over the coming year as they face large capacity additions in Asia, and maybe new facilities in Mexico and Nigeria that could force them to find new homes and perhaps start to refill the domestic tanks that have been running low for the past 2 years.

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Market Talk Update 10.04.23

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Market TalkFriday, Dec 1 2023

“Buy The Rumor, Sell The News” Seems To Be The Trading Pattern Of The Week

“Buy the Rumor, Sell the News” seems to be the trading pattern of the week as oil and refined products dropped sharply Thursday after OPEC & Friends announced another round of output cuts for the first quarter of next year. 

Part of the reason for the decline following that report is that it appears that the cartel wasn’t able to reach an official agreement on the plan for next year, prompting those that could volunteer their own production cuts without forcing restrictions on others. In addition, OPEC members not named Saudi Arabia are notorious for exceeding official quotas when they are able to, and Russia appears to be (surprise) playing games by announcing a cut that is made up of both crude oil and refined products, which are already restricted and thus allow an incremental increase of exports. 

Diesel futures are leading the way lower this morning, following a 13-cent drop from their morning highs Thursday, and came within 3-cents of a new 4-month low overnight. The prompt contract did leave a gap on the chart due to the backwardation between December and January contracts, which cut out another nickel from up front values.

Gasoline futures meanwhile are down 15-cents from yesterday’s pre-OPEC highs and are just 7-cents away from reaching a new 1-year low.  

Cash markets across most of the country are looking soft as they often do this time of year, with double digit discounts to futures becoming the rule across the Gulf Coast and Mid Continent. The West Coast is mixed with diesel prices seeing big discounts in San Francisco, despite multiple refinery upsets this week, while LA clings to small premiums. 

Ethanol prices continue to hold near multi-year lows this week as controversy over the fuel swirls. Corn growing states filed a motion this week trying to compel the courts to force the EPA to waive pollution laws to allow E15 blends. Meanwhile, the desire to grow even more corn to produce Jet Fuel is being hotly debated as the environmental impacts depend on which side of the food to fuel lobby you talk to.

The chaotic canal congestion in Panama is getting worse as authorities are continuing to reduce the daily number of ships transiting due to low water levels. Those delays are hitting many industries, energy included, and are now spilling over to one of the world’s other key shipping bottlenecks.

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

Pivotal Week For Price Action
Market TalkThursday, Nov 30 2023

No Official Word From OPEC Yet On Their Output Agreement For Next Year

Energy prices are pushing higher to start Thursday’s session after a big bounce Wednesday helped the complex maintain its upward momentum for the week.   

There’s no official word from OPEC yet on their output agreement for next year, but the rumor-mill is in high gear as always leading up to the official announcement, if one is actually made at all. A Reuters article this morning suggests that “sources” believe Saudi Arabia will continue leading the cartel with a voluntary output cut of around 1-million BPD to begin the year and given the recent drop in prices that seems like a logical move. 

We saw heavy selling in the immediate wake of the DOE’s weekly report Wednesday, only to see prices reverse course sharply later in the day. ULSD was down more than 9-cents for a few minutes following the report but bounced more than 7-cents in the afternoon and is leading the push higher this morning so far.

It’s common to see demand drop sharply following a holiday, particularly for diesel as many commercial users simply shut down their operations for several days, but last week’s drop in implied diesel demand was one of the largest on record for the DOE’s estimates. That drop in demand, along with higher refinery runs, helped push diesel inventories higher in all markets, and the weekly days of supply estimate jumped from below the 5-year seasonal range around 25 days of supply to above the high end of the range at 37 days of supply based on last week’s estimated usage although it’s all but guaranteed we’ll see a correction higher in demand next week.

Gasoline demand also slumped, dropping to the low end of the seasonal range, and below year-ago levels for the first time in 5-weeks. You’d never guess that based on the bounce in gasoline prices that followed the DOE’s report however, with traders appearing to bet that the demand slump in a seasonal anomaly and tighter than average inventories may drive a counter-seasonal price rally.

Refinery runs increased across the country as plants returned to service following the busiest fall maintenance season in at least 4-years. While total refinery run rates are still below last year’s levels, they’re now above the 5-year average with more room to increase as no major upsets have been reported to keep a large amount of throughput offline.

The exception to the refinery run ramp up comes from PADD 4 which was the only region to see a decline last week after Suncor apparently had another inopportune upset at its beleaguered facility outside Denver. 

The 2023 Atlantic Hurricane season officially ends today, and it will go down as the 4th most active season on record, even though it certainly didn’t feel too severe given that the US dodged most of the storms.  

Today is also the expiration day for December 2023 ULSD and RBOB futures so look to the January contracts (RBF and HOF) for price direction if your market hasn’t already rolled.

More refineries ready to change hands next year?  With Citgo scheduled to be auctioned off, Irving Oil undergoing a strategic evaluation, and multiple new refineries possibly coming online, 2024 was already looking to be a turbulent year for refinery owners. Phillips 66 was indicating that it may sell off some of its refinery assets, but a new activist investor may upend those plans, along with the company’s directors.

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