Trade Teeter Totter Continues To Dominate

Market TalkFriday, May 10 2019
Bulls Have Taken Back Control Of Energy Markets

The trade teeter totter continues to dominate the action in futures markets this week as US/China negotiations are set to begin again today.

After an early round of selling, both energy and US stock prices seemed to find a floor Thursday following reports of a letter and potential phone conversation between the US and Chinese presidents, providing optimism that a deal to avoid another round of retaliatory tariffs could be struck. So far this morning equity markets are less enthused about those prospects with futures pointing to losses of a little less than 1% when trading begins, while energy futures are clinging to modest gains.

After being the weakest link in the Energy chain during the heavy selling early in the week, RBOB gasoline futures have been leading the increases since the DOE report Wednesday, apparently reacting to strong domestic demand estimates, a large decline in East Coast refinery runs, and tighter than normal total inventories. While the recent strength for gasoline is welcome news for refiners, markets on the other side of the world are flashing warning signs that the good times for gasoline margins may soon come to an end.

Late this afternoon we’ll get to see how money managers are reacting to the rollercoaster ride when the COT report is released. So far the resilience of money managers betting on higher prices has been enough to stave off a technical breakdown, but when they decide to head for the exits, all bets (in some cases literally) are off.

Winners and losers: The EIA published a note this morning estimating that 2018 was the most profitable year for oil producers since 2013, and yet this week we’ve already seen one producer file for bankruptcy and another lay the groundwork to do the same. With the world’s largest oil companies all pledging dramatic increases to their operations in US shale plays, it seems there could be more small producers who get squeezed out of business even with prices holding at profitable levels.

Good luck with that: Mexico’s president was not satisfied with bids to build a new refinery, so announced that the government would partner with Pemex on the $8 billion project. Considering Mexico’s current refineries are operating at less than half of their capacity due to issue with Pemex and the government, that project now looks like a long shot at best.

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Pivotal Week For Price Action
Market TalkThursday, Feb 29 2024

It's Another Mixed Start For Energy Futures This Morning After Refined Products Saw Some Heavy Selling Wednesday

It's another mixed start for energy futures this morning after refined products saw some heavy selling Wednesday. Both gasoline and diesel prices dropped 7.5-8.5 cents yesterday despite a rather mundane inventory report. The larger-than-expected build in crude oil inventories (+4.2 million barrels) was the only headline value of note, netting WTI futures a paltry 6-cent per barrel gain on the day.

The energy markets seem to be holding their breath for this morning’s release of the Personal Consumption Expenditures (PCE) data from the Bureau of Economic Analysis (BEA). The price index is the Fed’s preferred inflation monitor and has the potential to impact how the central bank moves forward with interest rates.

Nationwide refinery runs are still below their 5-year average with utilization across all PADDs well below 90%. While PADD 3 production crossed its 5-year average, it’s important to note that measure includes the “Snovid” shutdown of 2021 and throughput is still below the previous two years with utilization at 81%.

We will have to wait until next week to see if the FCC and SRU shutdowns at Flint Hills’ Corpus Christi refinery will have a material impact on the regions refining totals. Detail on the filing can be found on the Texas Commission on Environmental Quality website.

Update: the PCE data shows a decrease in US inflation to 2.4%, increasing the likelihood of a rate cut later this year. Energy futures continue drifting, unfazed.

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, Feb 28 2024

It’s Red Across The Board For Energy Prices So Far This Morning With The ‘Big Three’ Contracts All Trading Lower To Start The Day

It’s red across the board for energy prices so far this morning with the ‘big three’ contracts (RBOB, HO, WTI) all trading lower to start the day. Headlines are pointing to the rise in crude oil inventories as the reason for this morning’s pullback, but refined product futures are leading the way lower, each trading down 1% so far, while the crude oil benchmark is only down around .3%.

The American Petroleum Institute published their national inventory figures yesterday afternoon, estimating an 8+ million-barrel build in crude oil inventory across the country. Gasoline and diesel stocks are estimated to have dropped by 3.2 and .5 million barrels last week, respectively. The official report from the Department of Energy is due out at its regular time this morning (9:30 CST).

OPEC’n’friends are rumored to be considering extending their voluntary production cuts into Q2 of this year in an effort to buoy market prices. These output reductions, reaching back to late 2022, are aimed at paring back global supply by about 2.2 million barrels per day and maintaining a price floor. On the flip side, knowledge of the suspended-yet-available production capacity and record US output is keeping a lid on prices.

How long can they keep it up? While the cartel’s de facto leader (Saudi Arabia) may be financially robust enough to sustain itself through reduced output indefinitely, that isn’t the case for other member countries. Late last year Angola announced it will be leaving OPEC, freeing itself to produce and market its oil as it wishes. This marks the fourth membership suspension over the past decade (Indonesia 2016, Qatar 2019, Ecuador 2020).

The spot price for Henry Hub natural gas hit a record low, exchanging hands for an average of $1.50 per MMBtu yesterday. A rise in production over the course of 2023 and above average temperatures this winter have pressured the benchmark to a price not seen in its 27-year history, much to Russia’s chagrin.

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