ULSD Futures Are Leading The Energy Complex In A Modest Recovery Bounce To Start Wednesday’s Session

Market TalkWednesday, Aug 16 2023
Pivotal Week For Price Action

After a 4-day slide that knocked more than 20 cents off of prompt values, ULSD Futures are leading the energy complex in a modest recovery bounce to start Wednesday’s session.   While the pullback has ended the chance of a near term rally to $3.50, as long as diesel futures can hold above the $3 mark there’s still an argument that there’s more upside to come as we approach the fall. 

Gasoline prices are treading water so far, and face seasonal headwinds with just a couple of weeks left in the driving system and the fall RVP blend down looming. The September RBOB contract was testing support at the trend-line that helped push prices up more than 50 cents/gallon since July 4th this morning and managed to bounce 4 cents off of those lows. If that trend line breaks, there’s a good chance we’ll see a 20-cent slide before month end, when we’ll see another 20+ cent drop as the October futures take over the prompt position.

The API reported a draw in crude oil inventories of 6 million barrels last week, while refined products saw small changes of less than 1 million barrels each on the week. The draw in crude is consistent with an expected recovery in oil exports after a big drop last week believed to be just timing issues on cargo loading rather than a shift in international demand, which has remained strong this year. The DOE/EIA’s weekly report is due out at its normal time this morning.

Are you wondering why diesel prices in Chicago are trading 15-20 cents below neighboring markets? The EIA has an answer for you, highlighting the rapid rise in Midwestern inventories this summer as refineries raised production without having the export options of their coastal counterparts.

The tropics are heating up. The NHC is now tracking 3 potential storm systems in the Atlantic basin. The first two over the eastern Atlantic have increased their odds of development over the past 24 hours and are now given 40-50% probability to be named in the coming week. The good news is both look like they should be moving far enough north to minimize a threat to the US. The third system is given 20% odds of developing in the Western Gulf of Mexico this week, near the heart of refinery row. You know it’s been a hot summer when the first thought about a potential tropical storm system hitting your state is “oh good, maybe that will cool things down”.

What’s in a name?  Later today the White House is going to hold a press conference to mark the 1-year anniversary of the “inflation production reduction act” that is handing out billions of dollars in tax credits to promote more spending on electric vehicles and other projects to try and promote cleaner energy options. Big Oil companies have been some of the largest beneficiaries of the act, as they were the only businesses with “shovel ready” projects in the carbon capture and sequestration space, in addition to those retooling refineries to produce renewables. When asked about the confusing name of the spending bill last week the President said, "I wish I hadn’t called it that because it has less to do with reducing inflation than it has to do with providing alternatives that generate economic growth,"

HF Sinclair announced it was buying out the remaining shares in its midstream spin-off Holly Energy Partners, the latest MLP to disappear thanks to the higher interest rate environment that makes those investment vehicles less attractive than they were during the days of free money.

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

Market Talk Update 08.16.2023

News & Views

View All
Pivotal Week For Price Action
Market TalkFriday, Sep 29 2023

The Energy Bulls Are On The Run This Morning, Lead By Heating And Crude Oil Futures

The energy bulls are on the run this morning, lead by heating and crude oil futures. The November HO contract is trading ~7.5 cents per gallon (2.3%) higher while WTI is bumped $1.24 per barrel (1.3%) so far in pre-market trading. Their gasoline counterpart is rallying in sympathy with .3% gains to start the day.

The October contracts for both RBOB and HO expire today, and while trading action looks to be pretty tame so far, it isn’t a rare occurrence to see some big price swings on expiring contracts as traders look to close their positions. It should be noted that the only physical market pricing still pricing their product off of October futures, while the rest of the nation already switched to the November contract over the last week or so.

We’ve now got two named storms in the Atlantic, Philippe and Rina, but both aren’t expected to develop into major storms. While most models show both storms staying out to sea, the European model for weather forecasting shows there is a possibility that Philippe gets close enough to the Northeast to bring rain to the area, but not much else.

The term “$100 oil” is starting to pop up in headlines more and more mostly because WTI settled above the $90 level back on Tuesday, but partially because it’s a nice round number that’s easy to yell in debates or hear about from your father-in-law on the golf course. While the prospect of sustained high energy prices could be harmful to the economy, its important to note that the current short supply environment is voluntary. The spigot could be turned back on at any point, which could topple oil prices in short order.

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

Pivotal Week For Price Action
Market TalkThursday, Sep 28 2023

Gasoline And Crude Oil Futures Are All Trading Between .5% And .8% Lower To Start The Day

The energy complex is sagging this morning with the exception of the distillate benchmark as the prompt month trading higher by about a penny. Gasoline and crude oil futures are all trading between .5% and .8% lower to start the day, pulling back after WTI traded above $95 briefly in the overnight session.

There isn’t much in the way of news this morning with most still citing the expectation for tight global supply, inflation and interest rates, and production cuts by OPEC+.

As reported by the Department of Energy yesterday, refinery runs dropped in all PADDs, except for PADD 3, as we plug along into the fall turnaround season. Crude oil inventories drew down last week, despite lower runs and exports, and increased imports, likely due to the crude oil “adjustment” the EIA uses to reconcile any missing barrels from their calculated estimates.

Diesel remains tight in the US, particularly in PADD 5 (West Coast + Nevada, Arizona) but stockpiles are climbing back towards their 5-year seasonal range. It unsurprising to see a spike in ULSD imports to the region since both Los Angeles and San Francisco spot markets are trading at 50+ cent premiums to the NYMEX. We’ve yet to see such relief on the gasoline side of the barrel, and we likely won’t until the market switches to a higher RVP.

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