This Week’s Rally Has Refined Products Eyeing New Bull Market

Market TalkThursday, Jan 12 2023
Pivotal Week For Price Action

Gasoline prices are trying to lead the energy complex higher for a 4th straight day, despite some bearish demand figures in yesterday’s DOE report. ULSD Prices were resisting the pull higher, trading in negative territory most of the night, but have recently pulled back into the green, and would mark a 5th straight increase if they can stay there. 

Despite the strong rally this week, refined products still have more work to do to erase the heavy losses we saw to start the year, which could make the next few sessions pivotal in determining if we’re in the early stages of a new bull market, or just stuck in a sideways range. Multiple short term technical indicators have moved into bullish territory this week, so it looks like we’ll at least see an attempt to take out the highs for the new year soon.

After the largest drop on record last week, the EIA’s estimate for total US petroleum demand did not recover much in the latest report, and is starting the new year nearly 3 million barrels/day (roughly 14%) lower than where it was to begin 2022. Gasoline is the biggest culprit in the weak domestic consumption figures, barely bouncing after last week’s huge drop, and still hovering near levels we saw during the first year of the pandemic when most companies were still working from home. 

So why did gasoline prices rally a dime on a day when the government told us that demand is terrible?  Possibly because the last week and first week of the year are always the worst times for consumption, and they’re now in the rearview mirror. Or, perhaps because the same report showed that more than 1 million barrels/day of refinery production remains offline as a handful of facilities are struggling to return to service after the Christmas blizzard. Or, even more likely it had no fundamental reason at all, and was driven by momentum chasing algorithms programmed to buy as the complex moved further away from the lows set last week. 

Diesel demand did see a healthy bounce last week, and was estimated to be slightly above year ago levels last week. All 5 PADDs are starting the year well below their 5 year average inventory levels, but most have recovered substantially over the past few months compared to the extreme tightness we witnessed for large parts of 2022. While a warm winter has been a huge help to get distillate stocks back to more manageable levels in Europe and the US East Coast, if the refinery runs can’t crank back up to normal levels in the next couple of weeks, more shortages look like a certainty.

The exception to the shortage concerns remains on the West Coast, where the unrelenting deluge continues to hammer demand, while refineries have been able to continue operating, which has pushed regional gasoline inventories to unusually high levels to start the year. 

The December CPI reading showed inflation at 6.5% in the US over the past 12 months, with “core” inflation readings at 5.7%. Both figures were in line with estimates, so they did not create big swings in either energy or equity markets in the immediate aftermath of the report. Rapidly falling gasoline and fuel oil prices helped the monthly figure drop by .1% in December, after rising energy prices were the biggest driver of inflation for most of the past 2 years. 

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.

Market Talk Update 01.12.2023

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Pivotal Week For Price Action
Market TalkWednesday, Jun 7 2023

Energy Prices Fluctuate: Chinese Imports Surge, Saudi Arabia Cuts Output and Buys Golf

Energy prices continue their back-and-forth trading, starting Wednesday’s session with modest gains, after a round of selling Tuesday wiped out the Saudi output cut bounce. 

A surge in China’s imports of crude oil and natural gas seem to be the catalyst for the early move higher, even though weak export activity from the world’s largest fuel buyer suggests the global economy is still struggling. 

New tactic?  Saudi Arabia’s plan to voluntarily cut oil production by another 1 million barrels/day failed to sustain a rally in oil prices to start the week, so they bought the PGA tour

The EIA’s monthly Short Term Energy Outlook raised its price forecast for oil, citing the Saudi cuts, and OPEC’s commitment to extend current production restrictions through 2024. The increase in prices comes despite reducing the forecast for US fuel consumption, as GDP growth projections continue to decline from previous estimates. 

The report included a special article on diesel consumption, and its changing relationship with economic activity that does a good job of explaining why diesel prices are $2/gallon cheaper today than they were a year ago.   

The API reported healthy builds in refined product inventories last week, with distillates up 4.5 million barrels while gasoline stocks were up 2.4 million barrels in the wake of Memorial Day. Crude inventories declined by 1.7 million barrels on the week. The DOE’s weekly report is due out at its normal time this morning. 

We’re still waiting on the EPA’s final ruling on the Renewable Fuel Standard for the next few years, which is due a week from today, but another Reuters article suggests that eRINs will not be included in this round of making up the rules.

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

Pivotal Week For Price Action
Pivotal Week For Price Action
Market TalkTuesday, Jun 6 2023

Energy Prices Retreat, Global Demand Concerns Loom

So much for that rally. Energy prices have given back all of the gains made following Saudi Arabia’s announcement that it would voluntarily withhold another 1 million barrels/day of oil production starting in July. The pullback appears to be rooted in the ongoing concerns over global demand after a soft PMI report for May while markets start to focus on what the FED will do at its FOMC meeting next week.

The lack of follow through to the upside leaves petroleum futures stuck in neutral technical territory, and since the top end of the recent trading range didn’t break, it seems likely we could see another test of the lower end of the range in the near future.  

RIN prices have dropped sharply in the past few sessions, with traders apparently not waiting on the EPA’s final RFS ruling – due in a week – to liquidate positions. D6 values dropped to their lowest levels in a year Monday, while D4 values hit a 15-month low. In unrelated news, the DOE’s attempt to turn seaweed into biofuels has run into a whale problem.  

Valero reported a process leak at its Three Rivers TX refinery that lasted a fully 24 hours.  That’s the latest in a string of upsets for south Texas refineries over the past month that have kept supplies from San Antonio, Austin and DFW tighter than normal. Citgo Corpus Christi also reported an upset over the weekend at a sulfur recovery unit. Several Corpus facilities have been reporting issues since widespread power outages knocked all of the local plants offline last month.  

Meanwhile, the Marathon Galveston Bay (FKA Texas City) refinery had another issue over the weekend as an oil movement line was found to be leaking underground but does not appear to have impacted refining operations at the facility. Gulf Coast traders don’t seem concerned by any of the latest refinery issues, with basis values holding steady to start the week.

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