Trade Teeter Totter Continues To Roil Markets

Market TalkMonday, Aug 26 2019
Energy Complex Trading Lower on OPEC news today

The trade teeter totter continues to roil markets with a new round of tariffs announced Friday morning sending energy and equity markets sharply lower, only to see a recovery rally this morning following reports that the US and China were returning to the negotiating table.

Fake News? After the overnight tweet about China wanting to make a deal sent equity markets sharply higher, and helped refined products turn 2 cent losses into penny gains, numerous other notes have surfaced suggesting that there has been no change in the official Chinese stance, and the phone calls may not have happened at all.

Keep an eye on corn and ethanol prices today after the US announced a new trade deal with Japan had been agreed to in principal, which includes a large increase in US corn exports. Ethanol & its RINs had already staged a nice recovery rally last week, and this latest bit of good news may help that upward momentum continue.

Iran claims it has sold the roughly 2 million barrels of oil onboard its tanker that had been held for weeks in Gibraltar, a move seen as trying to circumvent US intervention. Still no word on the British tanker that was seized by Iran in retaliation, although reports last week suggest it may also be released soon. Meanwhile, Israel attacked Iranian-linked forces in 3 different countries over the weekend, a stark reminder that the tensions in the region extend well beyond shipping lanes.

Tropical Storm Dorian formed over the weekend, and is on a path that could bring it to Florida next weekend. While models do suggest this storm may become a hurricane as it nears Puerto Rico, current forecasts suggest the storm will weaken due to dry air and wind shear, and may dissipate before reaching the US Coast. The other storm system known for now as 98L is still given 80% odds of developing this week, but is tracking off the US East coast and doesn’t currently appear to be a threat to land. Speaking of fake news: The US President is denying claims he suggested the country consider using nuclear bombs to stop hurricanes.

16 oil rigs were taken off-line last week, according to Baker Hughes’ weekly rig count, which brings the US total to a new 18 month low. The Permian basin led the decrease again, with 7 fewer rigs (a 1.5% decline in active rigs for that basin), while the DJ Niobrara basin in Colorado laid down 5 rigs, which amounts to a 16% reduction in just 1 week.

Money managers continue to seem uninterested in energy contracts, making small reductions in Brent and RBOB net length last week, while WTI and ULSD both saw small increases.

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Pivotal Week For Price Action
Market TalkWednesday, Jul 17 2024

Energy Markets Are Trying To Find A Price Floor After Gasoline And Crude Oil Staged A Healthy Bounce To Minimize The Heavy Losses

Energy markets are trying to find a price floor after gasoline and crude oil staged a healthy bounce to minimize the heavy losses we saw early in Tuesday’s session. WTI is leading the move higher early Wednesday, up nearly $.90/barrel in the early going, while RBOB prices are up just under a penny.

Diesel continues to look like the weak link in the energy chain both technically and fundamentally. Tuesday the API reported a 4.9 million barrel build in diesel stocks, while gasoline inventories were only up 365,000 barrels, and crude oil stocks declined by more than 4.4 million barrels. The DOE’s weekly report is due out at its normal time this morning and it’s likely we’ll see a reduction in oil output and PADD 3 refining runs thanks to shut ins ahead of Hurricane Beryl, but otherwise the storm appears to be a relative non-issue with only 1 notable refining hiccup, that wasn’t even as bad as a midwestern Thunderstorm.

Chicago basis values rallied Tuesday after reports that Exxon had shut down the 250mb/day Joliet refinery following severe storms that knocked out power to the area Sunday. RBOB differentials surged nearly 9 cents on the day, while diesel diffs jumped more than a nickel. With 3 large refineries in close proximity, the Chicago cash market is notoriously volatile if any of those facilities has an upset. Back in May there was a one-day spike in gasoline basis of more than 50 cents/gallon after Joliet had an operating upset so don’t be surprised if there are bigger swings this week if the facility doesn’t come back online quickly.

Moving in the opposite direction, California basis values are heading the opposite direction with the transition to August scheduling pressuring CARBOB differentials in LA and San Francisco to their biggest discounts to prompt RBOB futures in more than 18 months. Gasoline imports into PADD 5 have held well above average levels over the past 2 months, which has more than offset the loss of the P66 Rodeo refinery’s output after it completed its conversion to RD production, in another sign of how growing refining capacity in China and other Asian countries may become more influential to the US. California regulators may also pat themselves on the back that their new plans to force refineries to report their gross profit monthly, in addition to the rules requiring all bulk trades in the state be reported must be driving the lower gasoline differentials, assuming they figure out what a basis differential is.

Meanwhile, California’s Carbon Allowance values have tumbled to their lowest levels in a year after a CARB presentation last week suggested the agency would be delaying long-anticipated tightening of the Cap and Trade program until 2026.

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

Pivotal Week For Price Action
Market TalkTuesday, Jul 16 2024

The Sell-Off In Energy Markets Continues, With Refined Products Reaching Their Lowest Levels In A Month Early In Tuesday’s Session

The sell-off in energy markets continues, with refined products reaching their lowest levels in a month early in Tuesday’s session. Reports of slowing growth in China, the world’s largest oil purchaser, is getting much of the credit for the slide in prices so far this week, although that doesn’t do much to explain why refined products are outpacing the drop in crude.

ULSD futures are leading the early move lower, trading down a nickel on the day, and marking a 19 cent drop since July 4th. There’s not much in the way of technical support for ULSD, so don’t be surprised if this sell-off continues to pick up steam.

With today’s slide, RBOB futures are down 17 cents from where they were trading on July 4th, and are just a couple of cents from testing their 200-day moving average. Should that support break, it looks like there’s a good chance to test the June lows around $2.29.

Physical markets are not offering any strength to the futures market with all 6 of the major cash markets for diesel across the US trading at a discount to ULSD futures, while only 1 gasoline market is trading at a premium to RBOB futures. That combination of weakness in futures and cash markets is going to be troubling for refiners who are seeing margins reduce during what is traditionally a strong time of year.

The EIA highlighted the energy trade between the US and Mexico in a report Monday, showing that despite so many claims of energy independence from Mexican officials, the actual amount of refined fuels and natural gas bought from the US continues to increase. That’s good news for many US refiners who have become more dependent on Mexican purchases to find a home for their output.

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