The Wild Ride Continues

Market TalkFriday, Dec 7 2018
DOE Week 48 - 2018 Report

The wild ride continues this morning after cooler heads prevailed in Thursday’s session, helping energy and equity markets pull back from the brink of another major collapse. At multiple points during the day we saw refined products down more than 7 cents, only to recover each time and are starting the day with a wave of buying that had most contracts up around 2% as they awaited the OPEC announcement. US Equities saw a similar pattern, albeit for apparently different reasons, as the DJIA recovered most of its early 700 point drop by day’s end.

Conflicting headlines from the OPEC & Friends meetings continue to roil the energy markets, while equities seem to be breathing a sigh of relief that the arrest of a Chinese executive for violating US sanctions (on Iran) doesn’t appear to be stopping the talks of a trade truce.

Here’s an example of how unreliable the news wires are on the OPEC story:

* 07-Dec-2018 08:01:54 AM - OPEC SOURCE SAYS IRAN HAS AGREED TO OPEC DEAL

* 07-Dec-2018 08:02:58 AM - SECOND OPEC SOURCE SAYS IRAN HAS AGREED IN PRINCIPLE

*07-Dec-2018 08:09:22 AM - IRAN DELEGATE: IRAN HAS NOT REACHED AN AGREEMENT WITH OPEC

*07-Dec-2018 09:39:51 AM OPEC MEETING ENDS W/ AGREEMENT ON 1.2M B/D OPEC+ CUT: DELEGATES

Following that last headline of a 1.2 million barrel/day production cut energy prices have popped another 2-3 percent with most contracts now up 4-5% on the day.

The November jobs report showed an increase of 155,000 in non-farm payrolls, while the headline unemployment rate held steady at 3.7%, while the U-6 (aka the “real” unemployment rate) ticked up to 7.6%. Stocks moved higher in the wake of this report as it seems soft enough to keep the FED re-thinking their strategy for rate increases in 2019.

Notes from the DOE Weekly Status Report:

The headline draw of more than 7 million barrels of crude oil inventory (the first weekly decline in 11 weeks) sure seems bullish at face value, but when you dig deeper and notice that the weekly drop in imports accounted for 6.6 million barrels and the increase in exports accounted for another 5.3 million barrels. Suddenly the drop looks transitory, and even bearish, since we would have had a 5 million barrel build if the import/export flow had held steady to a week ago.

Remember the campaign slogan “drill baby drill”? Turns out that worked out better than its supporters did during the election 10 years ago as the US just became a net exporter of petroleum products last week for the first time in at least 45 years. Total oil & product imports were 8.8 million barrels per day last week, while total exports reached a new record north of 9 million barrels per day, with crude oil exports setting an all-time high north of 3 million barrels/day.

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Market TalkThursday, Mar 28 2024

Energy Markets Are Ticking Modestly Higher Heading Into The Easter Weekend With Crude Oil Prices Leading The Way Up About $1.25/Barrel Early Thursday Morning

Energy markets are ticking modestly higher heading into the Easter Weekend with crude oil prices leading the way up about $1.25/barrel early Thursday morning, while gasoline prices are up around 2.5 cents and ULSD futures are about a penny.

Today is the last trading day for April HO and RBOB futures, an unusually early expiration due to the month ending on a holiday weekend. None of the pricing agencies will be active tomorrow since the NYMEX and ICE contracts are completely shut, so most rack prices published tonight will carry through Monday.

Gasoline inventories broke from tradition and snapped a 7 week decline as Gulf Coast supplies increased, more than offsetting the declines in PADDs 1, 2 and 5. With gulf coast refiners returning from maintenance and cranking out summer grade gasoline, the race is now officially on to move their excess through the rest of the country before the terminal and retail deadlines in the next two months. While PADD 3 run rates recover, PADD 2 is expected to see rates decline in the coming weeks with 2 Chicago-area refineries scheduled for planned maintenance, just a couple of weeks after BP returned from 7 weeks of unplanned repairs.

Although terminal supplies appear to be ample around the Baltimore area, we have seen linespace values for shipping gasoline on Colonial tick higher in the wake of the tragic bridge collapse as some traders seem to be making a small bet that the lack of supplemental barge resupply may keep inventories tight until the barge traffic can move once again. The only notable threat to refined product supplies is from ethanol barge traffic which will need to be replaced by truck and rail options, but so far that doesn’t seem to be impacting availability at the rack. Colonial did announce that they would delay the closure of its underutilized Baltimore north line segment that was scheduled for April 1 to May 1 out of an “abundance of caution”.

Ethanol inventories reached a 1-year high last week as output continues to hold above the seasonal range as ethanol distillers seem to be betting that expanded use of E15 blends will be enough to offset sluggish gasoline demand. A Bloomberg article this morning also highlights why soybeans are beginning to displace corn in the subsidized food to fuel race.

Flint Hills reported a Tuesday fire at its Corpus Christi West facility Wednesday, although it’s unclear if that event will have a material impact on output after an FCC unit was “stabilized” during the fire. While that facility isn’t connected to Colonial, and thus doesn’t tend to have an impact on USGC spot pricing, it is a key supplier to the San Antonio, Austin and DFW markets, so any downtime may be felt at those racks.

Meanwhile, P66 reported ongoing flaring at its Borger TX refinery due to an unknown cause. That facility narrowly avoided the worst wildfires in state history a few weeks ago but is one of the frequent fliers on the TCEQ program with upsets fairly common in recent years.

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, Mar 27 2024

Most Energy Contracts Are Ticking Lower For A 2nd Day After A Trickle Of Selling Picked Up Steam Tuesday

Most energy contracts are ticking lower for a 2nd day after a trickle of selling picked up steam Tuesday. ULSD futures are down a dime from Monday’s highs and RBOB futures are down 7 cents.

Diesel prices continue to look like the weak link in the energy chain, with futures coming within 1 point of their March lows overnight, setting up a test of the December lows around $2.48 if that resistance breaks down. Despite yesterday’s slide, RBOB futures still look bullish on the weekly charts, with a run towards the $3 mark still looking like a strong possibility in the next month or so.

The API reported crude stocks increased by more than 9 million barrels last week, while distillates were up 531,000 and gasoline stocks continued their seasonal decline falling by 4.4 million barrels. The DOE’s weekly report is due out at its normal time this morning.

RIN values have recovered to their highest levels in 2 months around $.59/RIN for D4 and D6 RINs, even though the recovery rally in corn and soybean prices that had helped lift prices off of the 4 year lows set in February has stalled out. Expectations for more biofuel production to be shut in due to weak economics with lower subsidy values seems to be encouraging the tick higher in recent weeks, although prices are still about $1/RIN lower than this time last year.

Reminder that Friday is one of only 3 annual holidays in which the Nymex is completely shut, so no prices will be published, but it’s not a federal holiday in the US so banks will be open.

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