US Equity Markets Are Pointing Modestly Higher To Start The Week, After The S&P 500 Settled At A Record High Last Week

Market TalkMonday, Jan 22 2024
Pivotal Week For Price Action

It’s a mixed bag for energy futures to start the week. RBOB gasoline prices are up about 2.5 cents in the early going, while ULSD futures are ticking about a penny lower and crude oil prices cling to small gains. 

US equity markets are pointing modestly higher to start the week, after the S&P 500 settled at a record high last week. The correlation between energy and equity markets still isn’t strong, but it’s moved into positive territory recently so the pull higher from stocks could certainly trickle over into futures. 

Libya announced it resumed production at its largest oil field after the latest protest-induced shut in as that country still struggles to find normalcy 12+ years after the Arab Spring. Those restarts seem to be helping cool fears of oil shortages from the ongoing disruptions to Red Sea shipping, but other industries – particularly across Europe – are starting to feel the strain of longer shipping times.

Concerns over European supply vs the US are evident in the weekly Commitments of Traders reports with Brent and Gasoil contracts both seeing new length added by money managers, while the NYMEX trio all saw reductions in length last week. One interesting note in the CFTC report Friday was that WTI saw the producer/merchant trade category reach its largest net-length of the past decade. Often times producers will be short these contracts as a hedge of their future production, but this growing net length suggests that traditional hedging may be lower (perhaps in part due to the recent acquisition activity reducing the need for short term cash flow management) or more likely that US production bound for the export market is bringing in more buyers who are hedging their forward purchase demand.

Canada’s regulators approved a variance request for the Trans Mountain pipeline that will allow that 590mb/day line to begin operations in the next few months. Today’s interesting read from RBN Energy, how this new pipeline will complicate operations for US refiners in the Midwest and Gulf Coast and threaten the extra margin that’s been a key part to many facilities over the past decade.

Sunoco announced it is buying NuStar energy for $7.3 Billion this morning.  More details will be provided in a presentation later this morning, but the closing is tentatively set for the 2nd quarter of this year.

Marathon reported unplanned flaring at its LA-area Wilmington refinery this morning, 2 days after a broken pipe spewed an oil mixture into a neighboring street. LA spot prices have come under heavy selling pressure lately as healthy supplies meet the January demand doldrums, and if these events are more than an unfortunate mishap, they could be enough to at least pause the selling while traders assess any impacts.

Baker Hughes reported a decline of 2 oil rigs operating in the US last week, bringing the total to a new 2 year low, while natural gas rigs increased by 3. 

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

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Market TalkFriday, Jul 19 2024

Summertime-Friday-Apathy Trade Influencing Energy Markets

Energy markets are treading water to start the day as the Summertime-Friday-Apathy trade seems to be influencing markets around the world in the early going. RBOB futures are trying for a 3rd straight day of gains to wipe out the losses we saw to start the week, while ULSD futures continue to look like the weak link, trading lower for a 2nd day and down nearly 3 cents for the week.

Bad to worse: Exxon’s Joliet refinery remains offline with reports that repairs may take through the end of the month. On top of that long delay in restoring power to the facility, ENT reported this morning that the facility has leaked hydrogen fluoride acid gas, which is a dangerous and controversial chemical used in alkylation units. Chicago basis values continue to rally because of the extended downtime, with RBOB differentials approaching a 50-cent premium to futures, which sets wholesale prices just below the $3 mark, while ULSD has gone from the weakest in the country a month ago to the strongest today. In a sign of how soft the diesel market is over most of the US, however, the premium commanded in a distressed market is still only 2 cents above prompt futures.

The 135mb Calcasieu Refinery near Lake Charles LA has been taken offline this morning after a nearby power substation went out, and early reports suggest repairs will take about a week. There is no word yet if that power substation issue has any impacts on the nearby Citgo Lake Charles or P66 Westlake refineries.

Two tanker ships collided and caught fire off the coast of Singapore this morning. One ship was a VLCC which is the largest tanker in the world capable of carrying around 2 million barrels. The other was a smaller ship carrying “only” 300,000 barrels (roughly 12 million gallons) of naphtha. The area is known for vessels in the “dark fleet” swapping products offshore to avoid sanctions, so a collision isn’t too surprising as the vessels regularly come alongside one another, and this shouldn’t disrupt other ships from transiting the area.

That’s (not) a surprise: European auditors have determined the bloc’s green hydrogen goals are unattainable despite billions of dollars of investment, and are based on “political will” rather than analysis. Also (not) surprising, the ambitious plans to build a “next-gen” hydrogen-powered refinery near Tulsa have been delayed.

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

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Market TalkThursday, Jul 18 2024

Refined Products Stanch Bleeding Despite Inventory Builds And Demand Slump

Refined products are trading slightly lower to start Thursday after they stopped the bleeding in Wednesday’s session, bouncing more than 2 cents on the day for both RBOB and ULSD, despite healthy inventory builds reported by the DOE along with a large slump in gasoline demand.

Refinery runs are still above average across the board but were pulled in PADD 3 due to the short-term impacts of Beryl. The Gulf Coast region is still outpacing the previous two years and sitting at the top end of its 5-year range as refiners in the region play an interesting game of chicken with margins, betting that someone else’s facility will end up being forced to cut rates before theirs.

Speaking of which, Exxon Joliet was reportedly still offline for a 3rd straight day following weekend thunderstorms that disrupted power to the area. Chicago RBOB basis jumped by another dime during Wednesday’s session as a result of that downtime. Still, that move is fairly pedestrian (so far) in comparison to some of the wild swings we’ve come to expect from the Windy City. IIR via Reuters reports that the facility will be offline for a week.

LA CARBOB differentials are moving in the opposite direction meanwhile as some unlucky seller(s) appear to be stuck long and wrong as gasoline stocks in PADD 5 reach their highest level since February, and held above the 5-year seasonal range for a 4th consecutive week. The 30-cent discount to August RBOB marks the biggest discount to futures since 2022.

The EIA Wednesday also highlighted its forecast for rapid growth in “Other” biofuels production like SAF and Renewable Naptha and Propane, as those producers capable of making SAF instead of RD can add an additional $.75/gallon of federal credits when the Clean Fuels Producer’s Credit takes hold next year. The agency doesn’t break out the products between the various “Other” renewable fuels, but the total projected output of 50 mb/day would amount to roughly 2% of total Jet Fuel production if it was all turned to SAF, which of course it won’t as the other products come along for the ride similar to traditional refining processes.

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

Pivotal Week For Price Action