ULSD Futures Carry Momentum From 15 Cent Bounce

Market TalkWednesday, Aug 9 2023
Pivotal Week For Price Action

Diesel prices staged an impressive reversal Tuesday, bouncing more than 15 cents off of chart support, and that upward momentum carried through the overnight session to push prices to a fresh 6 month high. Gasoline and Oil prices staged similar but less dramatic recovery rallies and continue to follow diesel’s pull higher this morning with charts suggesting there’s room to continue pushing higher.

While equities also bounced noticeably off their lows Tuesday, the timing and size of the move in energy contracts suggests there was more to the rally than just following stock markets. Given the bandwagon jumping we’ve seen from money managers in energy contracts over the past several weeks it seems plausible that once support held, new funds were encouraged to join the party and bet that 6-month highs are still a good time to buy.

The API reported an increase in crude oil inventories of 4 million barrels last week (unless you believe the other headlines that say they dropped by 4 million barrels), following the huge draws the week prior. Diesel inventories were reported to drop by 2 million barrels, while Gasoline inventories were estimated to draw slightly around 410,000 barrels. The DOE’s weekly report is due out at its normal time, and after a huge swing in the adjustment factor drove the largest decline on record for crude oil last week, the market seems fully prepared to shrug off the headline oil inventory values as they did last Wednesday. Refinery runs will be a number to watch this week to see the actual impact of the heat wave and the numerous refinery hiccups that have come with it. PADD 2 gasoline stocks are also worth a watch as we’ve seen basis values in both the Group 3 and Chicago markets rally sharply in the past week, foreshadowing tight supplies ahead of the fall RVP transition.

California’s LCFS credit values have been rallying for the past few days following an announcement of another workshop on August 16 to discuss changing the program’s standards to (presumably) lower pollution targets similar to what we saw with the Cap & Trade program in July that sent CCA values soaring to record highs. That bump in LCFS values is welcome news for the rapidly expanding Renewable Diesel production crown that are dependent on those credits to turn a profit. Washington and Oregon’s programs meanwhile continue to come under fire for driving fuel prices in those states to California levels. 

For real this time? Mexico’s president kicked the can down the road again on the start date for Pemex’s new Dos Bocas refinery. The facility is already roughly 3X over budget and years behind schedule, and after a grand opening that promised fuel production no later than July, the most recent target has been moved to November. Coincidentally, November is also the new estimate for the first production from the Dangote refinery in Nigeria, which like Dos Bocas may either have a large impact on Atlantic basin product markets or remain a pipe dream depending on what’s actually happening behind the refinery gates. 

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

Market Talk Update 08.09.2023

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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.