ULSD Futures Contract Continued To Smash Records And Reset Charts Thursday

Market TalkFriday, Apr 29 2022
Pivotal Week For Price Action

The runaway train known as the May ULSD futures contract continued to smash records and reset charts Thursday, reaching a new all-time high of $5.22, which is more than $1/gallon above the high set in 2008, and 55 cents above the high set earlier in March. 

It’s the last trading day for May RBOB and ULSD futures, so for those in the NY Harbor and Group 3 based markets that haven’t already switched over to referencing June futures, you’ll want to be sure to watch the HOM and RBM contracts for direction today. 

Usually an expiring contract in a volatile month can bring some fireworks on the last few trading sessions, and we certainly saw that in Thursday’s action with the May contract smashing all-time records and trading $1/gallon above June. Overnight we saw the opposite however as it took more than 12 hours for the first trade in the May HO contract to happen.   

With open interest at decade lows as extreme volatility and backwardation (which led the CME group to increase margins this week) appear to be keeping many traders on the sideline, volume should be extremely low today so we could see hardly any trading, but there may be huge price swings if anyone needs to get something done.

The US dollar has surged to a 20 year high this week, as rising interest rates and a flight to safety have international dollars pouring into the us. (So much for those plans to replace the dollar with Yuan…) While obviously that’s not slowing down diesel prices any, the dollar strength could end up slowing the energy rally if it breaks the back of international buyers now facing a double whammy of record high fuel prices and their own currencies devaluing vs the dollar.   

Bottom line, prices are simply becoming unaffordable, if supply is available in the first place, which is going to hit demand in a big way.  Anecdotal evidence of this: employees of a major oil company were complaining yesterday about how much it cost them to fill up.  That actually happened.

RIN prices (and your grocery bill) continue to surge as the various edible oils used to make “advanced” biofuels are being hoarded by countries scared about feeding their people. 

No surprise that quarterly earnings reports this week are showing huge profits for oil producers and most refiners less than 2 years after the industry was left for dead. Considering that prices didn’t really rally until the 3rd month of the quarter, things are looking even better for Q2, although the inflationary impact of the war is giving plenty of reason for concern further out into the future.  

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Market Talk Update 4.29.22

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Pivotal Week For Price Action
Market TalkWednesday, Jun 7 2023

Energy Prices Fluctuate: Chinese Imports Surge, Saudi Arabia Cuts Output and Buys Golf

Energy prices continue their back-and-forth trading, starting Wednesday’s session with modest gains, after a round of selling Tuesday wiped out the Saudi output cut bounce. 

A surge in China’s imports of crude oil and natural gas seem to be the catalyst for the early move higher, even though weak export activity from the world’s largest fuel buyer suggests the global economy is still struggling. 

New tactic?  Saudi Arabia’s plan to voluntarily cut oil production by another 1 million barrels/day failed to sustain a rally in oil prices to start the week, so they bought the PGA tour

The EIA’s monthly Short Term Energy Outlook raised its price forecast for oil, citing the Saudi cuts, and OPEC’s commitment to extend current production restrictions through 2024. The increase in prices comes despite reducing the forecast for US fuel consumption, as GDP growth projections continue to decline from previous estimates. 

The report included a special article on diesel consumption, and its changing relationship with economic activity that does a good job of explaining why diesel prices are $2/gallon cheaper today than they were a year ago.   

The API reported healthy builds in refined product inventories last week, with distillates up 4.5 million barrels while gasoline stocks were up 2.4 million barrels in the wake of Memorial Day. Crude inventories declined by 1.7 million barrels on the week. The DOE’s weekly report is due out at its normal time this morning. 

We’re still waiting on the EPA’s final ruling on the Renewable Fuel Standard for the next few years, which is due a week from today, but another Reuters article suggests that eRINs will not be included in this round of making up the rules.

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Pivotal Week For Price Action
Pivotal Week For Price Action
Market TalkTuesday, Jun 6 2023

Energy Prices Retreat, Global Demand Concerns Loom

So much for that rally. Energy prices have given back all of the gains made following Saudi Arabia’s announcement that it would voluntarily withhold another 1 million barrels/day of oil production starting in July. The pullback appears to be rooted in the ongoing concerns over global demand after a soft PMI report for May while markets start to focus on what the FED will do at its FOMC meeting next week.

The lack of follow through to the upside leaves petroleum futures stuck in neutral technical territory, and since the top end of the recent trading range didn’t break, it seems likely we could see another test of the lower end of the range in the near future.  

RIN prices have dropped sharply in the past few sessions, with traders apparently not waiting on the EPA’s final RFS ruling – due in a week – to liquidate positions. D6 values dropped to their lowest levels in a year Monday, while D4 values hit a 15-month low. In unrelated news, the DOE’s attempt to turn seaweed into biofuels has run into a whale problem.  

Valero reported a process leak at its Three Rivers TX refinery that lasted a fully 24 hours.  That’s the latest in a string of upsets for south Texas refineries over the past month that have kept supplies from San Antonio, Austin and DFW tighter than normal. Citgo Corpus Christi also reported an upset over the weekend at a sulfur recovery unit. Several Corpus facilities have been reporting issues since widespread power outages knocked all of the local plants offline last month.  

Meanwhile, the Marathon Galveston Bay (FKA Texas City) refinery had another issue over the weekend as an oil movement line was found to be leaking underground but does not appear to have impacted refining operations at the facility. Gulf Coast traders don’t seem concerned by any of the latest refinery issues, with basis values holding steady to start the week.

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