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

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Market TalkFriday, May 17 2024

The Recovery Rally In Energy Markets Continues For A 3rd Day

The recovery rally in energy markets continues for a 3rd day with refined product futures both up more than a dime off of the multi-month lows we saw Wednesday morning. The DJIA broke 40,000 for the first time ever Thursday, and while it pulled back yesterday, US equity futures are suggesting the market will open north of that mark this morning, adding to the sends of optimism in the market.

Despite the bounce in the back half of the week, the weekly charts for both RBOB and ULSD are still painting a bearish outlook with a lower high and lower low set this week unless the early rally this morning can pick up steam in the afternoon. It does seem like the cycle of liquidation from hedge funds has ended however, so it would appear to be less likely that we’ll see another test of technical support near term after this bounce.

Ukraine hit another Russian refinery with a drone strike overnight, sparking a fire at Rosneft’s 240mb/day Tuapse facility on the black sea. That plant was one of the first to be struck by Ukrainian drones back in January and had just completed repairs from that strike in April. The attack was just one part of the largest drone attack to date on Russian energy infrastructure overnight, with more than 100 drones targeting power plants, fuel terminals and two different ports on the Black Sea. I guess that means Ukraine continues to politely ignore the White House request to stop blowing up energy infrastructure in Russia.

Elsewhere in the world where lots of things are being blown up: Several reports of a drone attack in Israel’s largest refining complex (just under 200kbd) made the rounds Thursday, although it remains unclear how much of that is propaganda by the attackers and if any impact was made on production.

The LA market had 2 different refinery upsets Thursday. Marathon reported an upset at the Carson section of its Los Angeles refinery in the morning (the Carson facility was combined with the Wilmington refinery in 2019 and now reports as a single unit to the state, but separately to the AQMD) and Chevron noted a “planned” flaring event Thursday afternoon. Diesel basis values in the region jumped 6 cents during the day. Chicago diesel basis also staged a recovery rally after differentials dropped past a 30 cent discount to futures earlier in the week, pushing wholesale values briefly below $2.10/gallon.

So far there haven’t been any reports of refinery disruptions from the severe weather than swept across the Houston area Thursday. Valero did report a weather-related upset at its Mckee refinery in the TX panhandle, although it appears they avoided having to take any units offline due to that event.

The Panama Canal Authority announced it was increasing its daily ship transit level to 31 from 24 as water levels in the region have recovered following more than a year of restrictions. That’s still lower than the 39 ships/day rate at the peak in 2021, but far better than the low of 18 ships per day that choked transit last year.

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

Pivotal Week For Price Action
Market TalkThursday, May 16 2024

Energy Prices Found A Temporary Floor After Hitting New Multi-Month Lows Wednesday

Energy prices found a temporary floor after hitting new multi-month lows Wednesday morning as a rally to record highs in US equity markets and a modestly bullish DOE report both seemed to encourage buyers to step back into the ring.

RBOB and ULSD futures both bounced more than 6 cents off of their morning lows, following a CPI report that eased inflation fears and boosted hopes for the stock market’s obsession of the FED cutting interest rates. Even though the correlation between energy prices and equities and currencies has been weak lately, the spillover effect on the bidding was clear from the timing of the moves Wednesday.

The DOE’s weekly report seemed to add to the optimism seen in equity markets as healthy increases in the government’s demand estimates kept product inventories from building despite increased refinery runs.

PADD 3 diesel stocks dropped after large increases in each of the past 3 weeks pushed inventories from the low end of their seasonal range to average levels. PADD 2 inventories remain well above average which helps explain the slump in mid-continent basis values over the past week. Diesel demand showed a nice recovery on the week and would actually be above the 5 year average if the 5% or so of US consumption that’s transitioned to RD was included in these figures.

Gasoline inventories are following typical seasonal patterns except on the West Coast where a surge in imports helped inventories recover for a 3rd straight week following April’s big basis rally.

Refiners for the most part are also following the seasonal script, ramping up output as we approach the peak driving demand season which unofficially kicks off in 10 days. PADD 2 refiners didn’t seem to be learning any lessons from last year’s basis collapse and rapidly increased run rates last week, which is another contributor to the weakness in midwestern cash markets. One difference this year for PADD 2 refiners is the new Transmountain pipeline system has eroded some of their buying advantage for Canadian crude grades, although those spreads so far haven’t shrunk as much as some had feared.

Meanwhile, wildfires are threatening Canada’s largest oil sands hub Ft. McMurray Alberta, and more than 6,000 people have been forced to evacuate the area. So far no production disruptions have been reported, but you may recall that fires in this region shut in more than 1 million barrels/day of production in 2016, which helped oil prices recover from their slump below $30/barrel.

California’s Air Resources Board announced it was indefinitely delaying its latest California Carbon Allowance (CCA) auction – in the middle of the auction - due to technical difficulties, with no word yet from the agency when bidders’ security payments will be returned, which is pretty much a nice microcosm for the entire Cap & Trade program those credits enable.

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