Today Is The Last Trading Day For March RBOB And ULSD Contracts
Gasoline prices are leading the energy complex in another rally Tuesday as refinery issues around the country, on top of an already busy maintenance season have some traders acting like the respite in supply disruptions we’ve become accustomed to over the past year may be coming to an end. While diesel prices have been leading the action for most of the past year, we’re now in the window of the annual spring gasoline rally so it won’t be surprising to see RBOB take the lead more often over the next several weeks.
Today is the last trading day for March RBOB and ULSD contracts. Most regional markets have already transitioned to trading vs the April contracts, but the NYH and Group spots will change today, so watch the RBJ and HOJ contracts for direction today if you haven’t already made the switch. Tomorrow will no doubt create confusion, as it does every year, when the April RBOB contract takes over the prompt position as it is trading at a 20+ cent premium to March futures due to the change in RVP specifications between the contracts and wreaking havoc on basis and rack spreads due to the mismatched timing of pipeline, terminal and retail transitions to summer-grade fuels.
More coast to coast winter storms are keeping drivers off the roads in parts of the country, while the risk of power outage and wind damage will keep some refinery operators on edge for the rest of the week. There were at least 3 different refinery issues talked on the West Coast Monday, and while it’s hard to assess what may be storm related, and what has to do with ongoing spring maintenance, the strong reaction in gasoline basis values left no doubt that traders see a sudden reduction in supply. Both LA and San Francisco spots rallied to 4 month highs Monday, with SF CARBOB values leading the way trading at a 55-cent premium to April futures.
The gulf coast also had several reported hiccups at refineries, with plants in Pasadena, Deer Park, Big Spring and Baton Rouge all said to be dealing with unplanned issues. So far Gulf Coast basis markets are largely shrugging off that news with little change in either gasoline or diesel values.
The EIA took a closer look at the impacts of the Suncor refinery downtime this winter, noting the regional price increases while most of the US was enjoying lower prices. That facility has been in the process of restarting some units over the past couple of weeks, and has been producing some fuel, although there have been numerous leaks and delays along the way. Markets for space on Magellan’s mountain line are still being talked at double digit premiums as suppliers believe it will take at least another month for supplies to heal, but those values are down 40-50 cents from their peak in January.
A suspected drone attack started a fire near a Russian refinery on the coast of the black sea overnight. Given the location of the facility, and the immediate threats to not spread “Fake information”, we’ll probably never know the real cause or effect of this latest attack on Russian energy infrastructure.
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Energy Markets Are Holding Steady To Start Tuesday’s Session
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View AllEnergy Markets Are Holding Steady To Start Tuesday’s Session
Energy markets are holding steady to start Tuesday’s session after oil prices had their biggest rally of the year Monday.
Reports that Iraq had halted shipments on the Ceyhan pipeline through Turkey, which removed 400,000 barrels/day of exports from the world market temporarily were given much of the credit for the big move higher. The rally in oil came just a week after large speculators reduced their bets on higher prices to the lowest level in 7 years, providing yet another reminder of why the moves made by hedge funds is often seen as a contrary indicator of market direction.
Refined products touched a 2-week high overnight before pulling back to modest losses this morning but remain in the middle of their March trading range, which sets the stage for more choppy back and forth action as markets around the world search for direction and worry about what’s coming next.
California approved the bill that will create a new committee within the state’s energy commission that will oversee oil refiners and potentially levy penalties on them if they’re deemed to be making too much money on consumers. The state has already had a handful of refineries close down in the past 6 years, with another scheduled to close and convert to an RD facility in early 2024, and there’s no doubt that this new law may be yet another reason for the remaining facilities to consider closing their doors as well, which many will see as a victory.
The Dallas FED’s manufacturing Survey showed a small increase in production in March, after February showed a contraction for the first time since the COVID lockdowns. The business outlook remains mixed however as many noted uncertainties around the banking situation, along with continued supply chain and labor challenges as factors hindering growth.
New competitor for feedstocks? A moose breached the security gates at the refinery in Sinclair Wyoming Monday. No word if the animal was just lost, or searching for the soybeans that are now being used to make renewable diesel at that facility.
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Energy Futures Rebound to Start the Week
Energy futures are bouncing to start the week, following through on a recovery rally that saw Friday’s early losses wiped out and salvaged weekly gains.
Money managers have been bailing out of their bets on higher energy prices in recent weeks, and as the CFTC’s data is finally catching up after 2 months of delays, we can finally see those figures the same week they’re compiled. The past two weeks alone have seen a reduction of more than 100,000 WTI contracts held by large speculators, bringing the total net length to the lowest level since January 2016.
The COT data also shows large reductions in producer hedging during this latest selloff in a sign that the industry may believe that prices won’t stay this low for long.
A WSJ article over the weekend highlighted how the options traders may have exacerbated the push lower over the past two months and could help spark a recovery rally later in the year.
Baker Hughes reported an increase of 4 oil rigs drilling in the US last week, snapping a 5-week slide that had pushed drilling activity to a 9-month low. The Permian basin accounted for 3 of the 4 rigs added last week.
Iraq won a 9-year lawsuit against Kurdish oil shipments, and that result has temporarily halted shipments of oil from the autonomous Kurdish region via the Turkish Ceyhan pipeline system.
Saudi Arabia announced an expansion of its partnership with China, increasing its multi-billion investment in new refining infrastructure in the world’s largest oil buyer. We’ve already seen multiple new refinery projects come online in both countries over the past two years, and this new agreement will continue the trend of additional capacity in the eastern hemisphere while the west continues to see declines.
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Correlation Confusion Between Oil, Stock, And Currency Markets; US Drops Plan to Replenish SPR
Oil prices are leading a slide lower to end the week after the US government walked back plans to buy oil since it’s dropped below $70, and the latest ripples in the banking crisis push stocks lower and the dollar sharply higher after it touched a 2-month low Thursday.
Even though the correlation between energy prices and stocks or currencies has been weak lately, or even opposite of normal in the case of the dollar, there still seems to be more influence lately as the fear trade has funds flowing back and forth between markets depending on whether or not risk-taking is in style that day.
The US Energy Secretary told congress that the agency won’t be refilling the SPR this year, despite previous pledges by the White House to buy oil when it dropped to $70, since the agency is still working through congressionally mandates sales of oil from the reserve. That news seems to be contributing to the downside in WTI and Brent prices as traders hoping to front run the DOE are now going to have to wait a while longer to do so.
Even though ULSD prices are up 17 cents from the lows set last week, they’re still on the verge of their lowest weekly settlement since January of 2022 should prices end the day near current levels. Given that this week’s recovery rally failed to take out the highs seen in previous weeks, charts continue to look bearish for distillates. Another run at $2.50 looks more likely and a break below that level, when the May contract takes the prompt position in another week, may be a foregone conclusion.
As has been the case for most of March, RBOB look as bad as ULSD on the charts, although that certainly isn’t helping so far today with gasoline futures outpacing the losses in diesel. Unless we see RBOB end the day down a dime or more (it’s down a nickel currently) the weekly trend will still be higher, and the charts will still be giving favor to another push towards $2.80-$3 this spring.
The LA spot market saw a healthy bounce in gasoline basis values Thursday following multiple refinery upsets in the area reported to local regulators. Meanwhile, the California Governors new plan to create an oversight committee to prevent price gouging – a major change from earlier proposals to levy a new tax on oil producers and refiners – passed through the Senate on Thursday. If this new bill is fully passed, it will allow the Governor to appoint that committee himself. A 1,000-page prediction of how that plan will work is available for less than $10 on Amazon.
Click here to download a PDF of today's TACenergy Market Talk.