Tidal Wave Of Selling Knocked 5% Off Petroleum Contracts

Market TalkWednesday, Nov 21 2018
DOE Week 48 - 2018 Report

If you like lower prices there’s plenty to be thankful for this week, after a tidal wave of selling Tuesday knocked more than 5% off of most petroleum contracts, pushing prices to their lowest levels of the year. Unfortunately for most with a 401K plan, that drop coincided with another large sell-off in US equities.

Reports that the US President planned to take it easy on Saudi Arabia over the killing of journalist Jamal Khashoggi (and noting the important role the kingdom plays in keeping oil prices in check) seemed to at least take fears of tension between 2 of the 3 largest oil producing nations off the table, and sparked speculation that there could be some quid-pro-quo on future supply decisions.

The big question: Did Tuesday’s melt-down mark the bottom for energy prices? Today’s good read from Seeking Alpha gives 3 reasons why that may be the case. 1. China will soon end its oil destocking that’s helped inflate global inventories. 2. OPEC is preparing to cut production. 3. Speculators are back to a neutral stance in energy contracts after weeks of mass liquidation.

For those looking for reasons why the selling may continue, look at the increasing oil output expected from Russia & the US on the supply side of the equation, and on the demand side, take a look at why the OECD thinks that growth in the global economy will slow next year.

CME/NYMEX futures will trade in abbreviated sessions both Thursday and Friday (no settlements Thursday) but physical spot market assessments won’t be made and most US companies will be closed, so most rack prices will hold steady through Monday.

CLICK HERE for a PDF of today's charts

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The Officially Imposed Sanctions Against Russian Oil Exports Are Taking Credit For This Morning’s Gains In Energy Prices

The officially imposed sanctions against Russian oil exports are taking credit for this morning’s gains in energy prices. Brent futures, the benchmark for European crude oil, are leading the pack higher so far today, trading up nearly 3%. West Texas Intermediate futures, along with both American refined product contracts, are tagging along with 1.5-2.5% gains.

OPEC’n’friends decided to stay pat on their Production Reduction™ policy through the end of the year, which aims to remove about 2 million barrels per day from global oil inventories. The relatively muted response in energy futures action suggests the ban on Russian crude and the continued reduction in cartel oil supply were both largely priced in.

It seems we have averted disaster last Friday as Washington passed legislation to prevent rail workers from going on strike. While the vast majority of refined products are transported to market hubs via pipeline, the required ethanol component of retail gasoline is by-and-large supplied via railcars.

Heating Oil futures stand out as the lone contract of the ‘big five’ that saw increased bullish bets from money managers last week, mostly due to the trimming of short positions rather than the addition of long positions. It seems fewer and fewer traders are willing to bet on lower diesel prices heading into the winter, where distillates act as backup supply for heating homes.

Market participants in crude oil futures fell to lows not seen since 2016 last week. It seems the global uncertainty surrounding energy supply and infrastructure has some potential players taking a wait-and-see approach rather than betting on price direction.

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

Pivotal Week For Price Action
Market TalkFriday, Dec 2 2022

The Energy Complex Is Trading Mostly Lower So Far This Morning

The energy complex is trading mostly lower so far this morning, with prompt month RBOB futures leading the way. Brent crude oil is struggling to hold on to overnight gains and it is exchanging hands on the green side of even, if only just.

The easing of quarantine protocols in China is taking partial credit for the weekly gain in WTI futures this morning, despite the emergence of reports and images showing provisional camps set up to enforce isolation and curb the latest spread of the pandemic.

The “ban” on Russian crude oil, set to take effect on Monday, has yet to reach final approval in Europe. Poland seems to be one of the last holdouts and has not been shy about wanting the price cap to be as low as possible.

Sunday’s OPEC+ meeting, which will reportedly be held virtually, is also getting some play in the headlines this morning. While some consider the setting of the meeting to telegraph no change in the cartel’s production policy, others posit the group is considering cuts ahead of next week’s oil ban.

The Bureau of Labor Statistics published the November jobs report this morning, an increase in nonfarm payrolls of 263,000 while unemployment rate held pat at 3.7%. The stock market did not like that: S&P 500 futures dropped 1.4% on the news as traders expect higher-than-expected job growth to buttress the Fed’s intent on continuing to raise interest rates.

The EPA published their proposed volume obligations under the Renewable Fuel Standard for the next three years and is now seeking public opinion on their target levels. Their report also estimates that the RIN obligations will reduce US oil imports by ~170,000 barrels per year. Is that a typo? We imported 6 million barrels per day last week, for reference.

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

Pivotal Week For Price Action
Market TalkThursday, Dec 1 2022

December Trading Is Kicking Off With Modest Gains For Energy Contracts

December trading is kicking off with modest gains for energy contracts after a strong finish to November helped the complex avoid a technical breakdown.  

Equity markets saw another big rally Wednesday after the FED chair suggested that smaller rate hikes were coming. The correlation between energy and equity markets remains weak, so it doesn’t seem like that’s having much influence on daily pricing, but it certainly doesn’t hurt the case for a recovery rally.  New reports that China may ease some lockdowns in the wake of last weekend’s protests is also getting some credit for the strength in prices after they reached 11 month lows on Monday.

The DOE’s weekly report had something for everyone with crude oil stocks showing some bullish figures while refined product supplies got some much-needed relief.

US Crude oil inventories saw a huge drop of more than 12 million barrels last week thanks to a surge in exports to the 3rd highest level on record, a drop in imports, and the SPR sales that have been supplementing commercial supplies for the past 6 months wind down. The market reaction was fairly muted to the big headline drop, which is probably due to the inconsistent nature of the import/export flows, which are likely to reverse course next week. The lack of SPR injections will be a key figure to watch through the winter, particularly as the Russian embargo starts next week.

Diesel inventories increases across all 5 PADDs last week, as demand dipped again and imports ticked higher. Diesel exports remain above average, and are expected to continue that pace in the near term as European and Latin American buyers continue to be short. Read this note for why in the long term more of those supplies will probably come from China or Kuwait

US refiners continue to run all-out, with total throughput last week reaching its highest level since the start of the pandemic, even though we’ve lost more than 600,000 barrels/day of capacity since then. Those high run rates at a time of soft demand help explain why we’re seeing big negative basis values at the refining hubs around the country and if the pipeline and vessel outlets can’t keep pace to move that product elsewhere we may see those refiners forced to cut back due to lack of storage options.

The EPA was required by court order to submit its plans for the renewable fuel standard by November 16, and then came to an agreement to release them on November 30, and then apparently decided to meet that deadline, but not release the plan to the public. If you think this is ridiculous, you’re not alone, but keep in mind this is the same agency that regularly missed the statutory deadline by more than a year previously, so it’s also not too surprising. This is also the law that required 16 billion gallons/year of cellulosic biofuels be blended by 2022 when it was put into place 15 years ago, only to run into a wall of physical reality where the country is still unable to produce even 1 billion gallons/year of that fuel. 

There are still expectations that the public may get to see the proposed rulings later this week, and reports that renewable electricity generation will be added to the mix for the first time ever starting next year. RIN prices were pulling back from the 18 month highs they reached leading up to the non-announcement as it seems the addition of “eRINs” will add new RIN supply, and potentially offset the increased biofuel mandates.

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