ULSD Prices Are Currently Trading Above Their Downward Sloping Trend-Line

Market TalkWednesday, Jan 10 2024
Pivotal Week For Price Action

Fuel prices are heading higher for a 2nd day, with both RBOB and ULSD futures pushing nickel gains in the early going despite more signs of swelling inventories.  

ULSD prices are currently trading above their downward sloping trend-line, and the charts suggest we’ll see a run north of $2.80 in the near future if these gains can hang on today.   RBOB prices remain less bullish technically, and face more seasonal headwinds than diesel, but still look like they have a good shot of making a run at the 200-day moving average just north of $2.20 in the next week. 

Houthi rebels launched their largest attacks yet in the Red Sea Tuesday night, which was successfully repelled by US and British naval forces and no damage was reported by ships moving through the region. The attack comes just hours before the UN takes a vote on a resolution to condemn the attacks, and seems to make it more likely that the Houthis are about to get a lesson in US special operations capabilities. 

The third major winter storm in a week is set to sweep across the country over the next few days, following a similar West to East path as the one we just saw. What may be more concerning for some is that some extremely cold air is coming in the wake of this storm, pushing large parts of the country below zero for 2 or more days to start next week, while north Texas is predicted to drop into single digits. Refinery row across the Gulf Coast is expected to see temperatures drop below freezing Monday and Tuesday, which certainly could create some operational upsets, but unlike Winter Storm Uri in 2021, temperatures will get above freezing during the day, and the cold snap is only set to last about 48 hours, so it seems unlikely we’ll see anything close to the chaos of a few years ago. ERCOT is already issuing warnings in preparation for this latest cold snap, but says the grid is prepared to handle the spike in demand. 

The API reported more large refined product builds last week with gasoline stocks up nearly 5 million barrels, while distillates increased by 6.9 million barrels. Obviously given the overnight rally in prices, the market seems to be shrugging off those builds, which may be because the API’s figures had to go higher to keep pace with the 10+ million barrel builds reported by the DOE last week, so the APIs figures weren’t unexpected.   The DOE’s weekly report is due out at its regular time this morning, the first time in 3 weeks it will be on schedule due to the holidays. Next week’s report will be delayed again for the MLK Jr. Day holiday, which will also shut spot markets (and many industry offices as a result) even though futures will still trade in an abbreviated session.

The Monday holiday will also coincide with what’s expected to be the worst of the cold weather, so we won’t get cues on the severity of the event from spot market trading.  Perhaps the most vulnerable part of the country to a cold snap is the Northeastern US due to a lack of natural gas transportation infrastructure forcing many to still rely on diesel fuel as a primary or backup heat source, while diesel stocks in the region remain very low by historical standards. The good news there is so far the forecast lows for the major metro areas from New York to Boston are only in the teens, and daytime highs will hover around freezing, so this is not (yet) looking anything like the major Polar Vortex event from a decade ago.

This week’s interesting read: Chevron’s response to California’s proposed rule that would penalize refiners for making too much money. For the counter-argument, read about California’s X1-2 bill here. Meanwhile, California officials announced this week that refiners, traders, brokers and anyone else participating in the states spot markets now need to report their trades twice, once when the deal is done and again once the final prices are set, since earlier mandates to report all trades couldn’t handle the realities of floating price mechanisms commonly used.

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Market Talk Update 01.10.2024

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Pivotal Week For Price Action
Pivotal Week For Price Action
Market TalkThursday, Feb 22 2024

RBOB And ULSD Futures Down Around 2.5 Cents After A Mixed Performance Wednesday

Refined products are leading the energy complex lower to start Thursday’s trading with both RBOB and ULSD futures down around 2.5 cents after a mixed performance Wednesday.

The API reported another large build in crude oil inventories last week, with inventories up more than 7 million barrels while gasoline inventories increased by 415,000 barrels and diesel stocks dropped by 2.9 million. The crude oil build was no doubt aided once again by the shutdown of BP’s Whiting refinery that takes nearly ½ million barrels/day of oil demand out of the market. That facility is said to be ramping up operations this week, while full run rates aren’t expected again until March. The DOE’s weekly report will be out at 11am eastern this morning.

Too much or not enough? Tuesday there were reports that the KM pipeline system in California was forced to shut down two-line segments and cut batches in a third due to a lack of storage capacity as heavy rains have sapped demand in the region. Wednesday there were new reports that some products ran out of renewable diesel because of those pipeline delays, bringing back memories of the early COVID lockdown days when an excess of gasoline caused numerous outages of diesel.

The Panama Canal Authority has announced $8.5 billion in sustainability investments planned for the next 5 years. Most of those funds are aimed at sustainability efforts like modernizing equipment and installing solar panels, while around $2 billion is intended for a better water management system to combat the challenges they’ve faced with lower water levels restricting transit by 50% or more in the past year. More importantly in the near term, forecasts for the end of the El Nino pattern that contributed to a record drought, and the beginning of a La Nina pattern that tends to bring more rain to the region are expected to help improve water levels starting this summer.

The bad news is that La Nina pattern, coupled with historically warm water temperature has Accuweather forecasters sounding “Alarm Bells” over a “supercharged” hurricane season this year. Other years with a similar La Nina were 2005 which produced Katrina, Rita and Wilma and 2020 when we ran out of names, and the gulf Coast was repeatedly pummeled but markets didn’t react much due to the COVID demand slump. Perhaps most concerning for the refining industry is that unlike the past couple of years when Florida had the bullseye, the Texas coast is forecast to be at higher risk this year.

RIN prices continued their slide Wednesday morning, trading down to 38 cents/RIN before finally finding a bid that pushed values back to the 41-42 cent range by the end of the day.

The huge slide in RIN values showed up as a benefit in Suncor’s Q4 earnings report this morning, as the Renewable Volume Obligation for the company dropped to $4.75/barrel vs $8.55/barrel in Q4 of 2022. Based on the continued drop so far in 2024, expect that obligation to be nearly cut in half again. Suncor continued the trend of pretty much every other refiner this quarter, showing a dramatic drop in margins from the record-setting levels in 2022, but unlike a few of its counterparts over the past week was able to maintain positive earnings. The company noted an increase in refining runs after recovering from the Christmas Eve blizzard in 2022 that took down its Denver facility for months but did not mention any of the environmental challenges that facility is facing.

Valero’s McKee refinery reported a flaring event Wednesday that impacted multiple unites and lasted almost 24 hours. Meanwhile, Total reported more flaring at its Pt Arthur facility as that plant continues to struggle through restart after being knocked offline by the January deep freeze.

Speaking of which, the US Chemical Safety board released an update on its investigation into the fire at Marathon’s Martinez CA renewable diesel plant last November, noting how the complications of start -up leave refineries of all types vulnerable.

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Pivotal Week For Price Action
Market TalkWednesday, Feb 21 2024

It’s A Mixed Start For Energy Markets To Start Wednesday’s Session After A Heavy Round Of Selling Tuesday

It’s a mixed start for energy markets to start Wednesday’s session after a heavy round of selling Tuesday. RBOB gasoline futures are clinging to modest gains in the early going while the rest of the complex is moving lower.  

WTI is pulling back for a 2nd day after reaching a 3.5 month high just shy of $80. The pullback pushes prompt values back below the 200-day moving average, reducing the likelihood of a breakout to the upside near term.

ULSD values are down nearly 10 cents for the week and are down more than 26 cents from the high trade set February 9th. That pullback leaves ULSD in neutral territory and could act as a headwind for gasoline prices that still seem poised to at least attempt a typical spring rally that adds roughly 20-30% from winter values.

RIN prices continue their slide this week, with D6 and D4 values reaching new 4-year lows around $.41/RIN Tuesday, which is down just slightly from the $1.62/RIN they were going for a year ago.

HF Sinclair reported a loss for Q4 this morning, with its refining and renewables segments each losing roughly $75 million for the quarter. The change from a year ago in the refining segment is a harsh reminder of the cyclical nature of the business as earnings dropped more than $800 million year on year, with inventory cost adjustments accounting for roughly ¼ of that decline.   

While it wasn’t mentioned in the press release, HFS has the most direct exposure to New Mexico’s recent approval of a clean fuel standard that will start in 2026. That law will no doubt help the company’s struggling Renewables assets in the state but will also create extra costs for their traditional refining operations.

The EIA this morning noted that conditions in the Panama Canal improved slightly in January, allowing Gulf Coast exports to Asia, primarily of Propane and ethane, to increase. While transit capacity is still far below levels we saw before the drought reduced operations in the canal, any improvement offers welcome relief to shippers as they can avoid going the long-way around to avoid the violence in the Red Sea.

France’s navy didn’t waste any time getting into the Red Sea action, shooting down a pair of Houthi Drones less than a day after joining the EU’s official mission to assist in clearing the shipping lanes. It’s not yet clear whether this marks the first official military victory by the French since Napoleon. 

Reminder that the weekly inventory reports are delayed a day due to the holiday Monday.

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