ULSD Futures Are Trading Up For A 4th Straight Day, which Has Finally Broken The Downward Sloping Weekly Trend-Line Since Early February

Market TalkMonday, Mar 18 2024
Pivotal Week For Price Action

Refined products are rallying again to start the week after another round of attacks on Russian refineries over the weekend. For RBOB futures, this is the 6th straight day of increases, and prices have added 22 cents so far in that stretch and touched their highest level since September. ULSD futures are trading up for a 4th straight day, adding 15 cents in that time, which has finally broken the downward sloping weekly trend-line that had pushed prices lower since early February.

When a refinery in the US has a power outage or other unplanned disruption, it’s very challenging to get a clear read on the operational status of the facility (even sometimes for employees of that company) given the complex nature of operations and the economic stakes of that information. Once that reality sinks in, it’s easier to understand why getting a clear read on the actual impact of the drone attacks on at least 6 Russian refineries is about as easy as pronouncing their names.

The 6 refineries hit in the past week represent 1.3 million barrels of capacity, which makes up 24% of Russia’s total estimated refining capability, or just over 1% of global capacity. If even half of that output is shut for repairs as several reports suggest, it will have a meaningful impact on export flows, with countries like Brazil that had reduced US purchases in the past two years to take more disadvantaged Russian diesel the immediate losers, while USGC refiners should see a tick higher in their diesel export volumes that had stagnated of late (see charts below).

Staging for a spring rally: Confirming their bandwagon jumper status, money managers look like they’re joining in on the spring RBOB rally, now that prices have already reached 6-month highs. 1 out of 5 remaining of the large speculative short positions in RBOB contracts threw in the towel last week, while more than 4,000 new long positions were added.

HO futures saw the opposite response from money managers, who liquidated long positions and added new short bets in the US ULSD contract last week. The European diesel (gasoil) contracts, which has more than double the open interest of its US counterpart, saw a small increase in net length last week.

While open interest has recovered from the “too hot to handle” period of 2022, both the total OI for NYMEX and ICE petroleum contracts and the positions held by large speculative traders are still low compared to before the full-scale invasion of Ukraine broke out 2 years ago. Since the refinery attacks didn’t really get going until Tuesday of last week, which is also the day the CFTC collects its data for the Commitments of Traders report, these figures don’t yet include how hedge funds reacted to the attacks, but based on the price action there’s little doubt that the big speculators were piling in to refined product contracts, and now it’s just a question of how long they’ll stick around.

Baker Hughes reported an increase of 6 oil rigs and 1 natural gas rig in the US last week, pushing the total oil rig count to the highest level since September. Given the months of lead time generally needed to get new rigs active, it’s unlikely that the latest rally north of $80 was the catalyst for the rig count rising in 3 of the past 4 weeks, but it does come at an opportune time given that US production has dipped from its record high of 13.3 million barrels to 13.1 million, if you believe the EIA’s accounting problems have been fixed.

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Market Talk Update 03.18.2024

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Pivotal Week For Price Action
Market TalkFriday, Apr 19 2024

Gasoline Futures Are Leading The Way Lower This Morning

It was a volatile night for markets around the world as Israel reportedly launched a direct strike against Iran. Many global markets, from equities to currencies to commodities saw big swings as traders initially braced for the worst, then reversed course rapidly once Iran indicated that it was not planning to retaliate. Refined products spiked following the initial reports, with ULSD futures up 11 cents and RBOB up 7 at their highest, only to reverse to losses this morning. Equities saw similar moves in reverse overnight as a flight to safety trade soon gave way to a sigh of relief recovery.

Gasoline futures are leading the way lower this morning, adding to the argument that we may have seen the spring peak in prices a week ago, unless some actual disruption pops up in the coming weeks. The longer term up-trend is still intact and sets a near-term target to the downside roughly 9 cents below current values. ULSD meanwhile is just a nickel away from setting new lows for the year, which would open up a technical trap door for prices to slide another 30 cents as we move towards summer.

A Reuters report this morning suggests that the EPA is ready to announce another temporary waiver of smog-prevention rules that will allow E15 sales this summer as political winds continue to prove stronger than any legitimate environmental agenda. RIN prices had stabilized around 45 cents/RIN for D4 and D6 credits this week and are already trading a penny lower following this report.

Delek’s Big Spring refinery reported maintenance on an FCC unit that would require 3 days of work. That facility, along with several others across TX, have had numerous issues ever since the deep freeze events in 2021 and 2024 did widespread damage. Meanwhile, overnight storms across the Midwest caused at least one terminal to be knocked offline in the St. Louis area, but so far no refinery upsets have been reported.

Meanwhile, in Russia: Refiners are apparently installing anti-drone nets to protect their facilities since apparently their sling shots stopped working.

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

Pivotal Week For Price Action
Market TalkThursday, Apr 18 2024

The Sell-Off Continues In Energy Markets, RBOB Gasoline Futures Are Now Down Nearly 13 Cents In The Past Two Days

The sell-off continues in energy markets. RBOB gasoline futures are now down nearly 13 cents in the past two days, and have fallen 16 cents from a week ago, leading to questions about whether or not we’ve seen the seasonal peak in gasoline prices. ULSD futures are also coming under heavy selling pressure, dropping 15 cents so far this week and are trading at their lowest level since January 3rd.

The drop on the weekly chart certainly takes away the upside momentum for gasoline that still favored a run at the $3 mark just a few days ago, but the longer term up-trend that helped propel a 90-cent increase since mid-December is still intact as long as prices stay above the $2.60 mark for the next week. If diesel prices break below $2.50 there’s a strong possibility that we see another 30 cent price drop in the next couple of weeks.

An unwind of long positions after Iran’s attack on Israel was swatted out of the sky without further escalation (so far anyway) and reports that Russia is resuming refinery runs, both seeming to be contributing factors to the sharp pullback in prices.

Along with the uncertainty about where the next attacks may or may not occur, and if they will have any meaningful impact on supply, come no shortage of rumors about potential SPR releases or how OPEC might respond to the crisis. The only thing that’s certain at this point, is that there’s much more spare capacity for both oil production and refining now than there was 2 years ago, which seems to be helping keep a lid on prices despite so much tension.

In addition, for those that remember the chaos in oil markets 50 years ago sparked by similar events in and around Israel, read this note from the NY Times on why things are different this time around.

The DOE’s weekly status report was largely ignored in the midst of the big sell-off Wednesday, with few noteworthy items in the report.

Diesel demand did see a strong recovery from last week’s throwaway figure that proves the vulnerability of the weekly estimates, particularly the week after a holiday, but that did nothing to slow the sell-off in ULSD futures.

Perhaps the biggest next of the week was that the agency made its seasonal changes to nameplate refining capacity as facilities emerged from their spring maintenance.

PADD 2 saw an increase of 36mb/day, and PADD 3 increased by 72mb/day, both of which set new records for regional capacity. PADD 5 meanwhile continued its slow-motion decline, losing another 30mb/day of capacity as California’s war of attrition against the industry continues. It’s worth noting that given the glacial pace of EIA reporting on the topic, we’re unlikely to see the impact of Rodeo’s conversion in the official numbers until next year.

Speaking of which, if you believe the PADD 5 diesel chart below that suggests the region is running out of the fuel, when in fact there’s an excess in most local markets, you haven’t been paying attention. Gasoline inventories on the West Coast however do appear consistent with reality as less refining output and a lack of resupply options both continue to create headaches for suppliers.

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