US Equity Markets Have Wiped Out Their Black Friday Losses And Energy Futures Are Close Behind

Market TalkWednesday, Dec 8 2021
Pivotal Week For Price Action

US equity markets have wiped out their black Friday losses, and energy futures are following close behind with both refined products up more than 25 cents off of last week’s lows. While the rally is no doubt impressive, we still need to see RBOB regain the $2.20 mark and ULSD get above $2.30 in order to break the downward sloping trend lines that started 7 weeks ago.  If those levels hold as resistance, than this rally looks more like a short term correction rather than a reversal of the downward trend.

Omicron-who? A new Pfizer study suggests that 3 doses of their vaccine is effective against that strain of the virus, adding to the sense of relief that’s washed over markets this week.  Whether or not that translates into relaxed travel restrictions may be the deciding factor in the sustainability of this rally.

Amidst the huge rally in stocks, energy futures and chaos in some regional supply markets and environmental credits, the normal fundamental data seems to be taking a backseat. The EIA’s short term energy outlook lowered the agencies demand forecast because of Omicron-induced travel restrictions, and set a price forecast for WTI in the low $60s for next year. That report was basically ignored during yesterday’s big rally, and may already be considered obsolete given the optimism for the vaccines’ effectiveness. The API’s weekly report was also largely shrugged off as inventory builds for gasoline and diesel did little to slow the upward momentum, while WTI prices stalled out overnight even though US crude inventories declined.  The DOE’s weekly report is due out at 9:30 central, and we’ll just wait and see if anyone pays attention to it.

It was a wild day in RIN markets as the long overdue RFS proposals from the EPA finally were released, just a year (or two) later than the law says they should be. D6 RINs traded down 15 cents on the day to a 1 year low of $.75/RIN when the rumored numbers came out in the morning, then rallied 30 cents to end the day up 15 cents at $1.05 after the actual Renewable Volume Obligation (RVO) recommendation was released by the EPA.  The actual proposed numbers came in very close to the leaked numbers from back in September, which retroactively changed the 2020 blending mandate lower and reduced the 2021 volumes as well. 

Why the big rally then? Along with the proposed volumes, the EPA also proposed to deny more than 60 pending small refinery exemptions (SRE) from the RFS, which according to the table below suggests every single SRE submitted since 2019 is going to be denied, a stark contract to the previous 3 years when most were granted. So what? That means even though the RVO target has been lowered, the actual volumes needing to be blended may still go up. In addition, the EPA raised the 2022 blending obligation, and set the stage for further increases in 2023 and beyond.  

It’s worth noting, particularly given the large amount of fake news surrounding this topic, that neither the RVO or SRE proposals are final yet, and there will no doubt be lawsuits challenging both decisions, meaning the industry will continue operating without knowing exactly what the law really is. 

The Natural Gas war: After a phone call between the US & Russian Presidents Tuesday, US Officials signaled a plan to force a shutdown of the Nordstream 2 natural gas line that exports Russian natural gas to Europe if there’s an invasion of the Ukraine.  There’s no doubt the Russians know how to play a game of chess, so it will be interesting – if not terrifying for those relying on that supply – to see their response. This event may end up being one for the history books, whether or not the US Excess natural gas supply can help secure Europe’s shortage, or will they continue to prove reliant on an unfriendly neighbor to the East.  Hopefully that’s the only part of this story that ends up in the history books. 

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

Market Talk Update 12.08.21

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Pivotal Week For Price Action
Market TalkFriday, Sep 22 2023

Energy Markets Are Ticking Modestly Higher This Morning But Remain Well Off The Highs Set Early Thursday

Energy markets are ticking modestly higher this morning but remain well off the highs set early Thursday following the reports that Russia was temporarily banning most refined product exports.  

The law of government intervention and unintended consequences: Russian officials claim the export ban is an effort to promote market stability, and right on cue, its gasoline prices plummeted a not-so-stable 10% following the news. 

There’s a saying that bull markets don’t end due to bad news, they end when the market stops rallying on good news. It’s possible that if ULSD futures continue lower after failing to sustain yesterday’s rally, or this morning’s, we could be seeing the end of the most recent bull run. That said, it’s still much too soon to call the top here, particularly with a steepening forward curve leaving prices susceptible to a squeeze, and the winter-demand months still ahead of us. Short term we need to see ULSD hold above $3.30 next week to avoid breaking its weekly trend line.

The sell-off in RIN values picked up steam Thursday, with 2023 D4 and D6 values dropping to the $1.02 range before finally finding a bid later in the session and ending the day around $1.07.   

Tropical Storm Ophelia is expected to be named today, before making landfall on the North Carolina coast tomorrow. This isn’t a major storm, and there aren’t any refineries in its path, so it’s unlikely to do much to disrupt supply, but it will dump heavy rain several of the major East Coast markets so it will likely hamper demand through the weekend. The other storm system being tracked by the NHC is now given 90% odds of being named next week, but its predicted path has shifted north as it moves across the Atlantic, which suggests it is more likely to stay out to sea like Nigel did than threaten either the Gulf or East Coasts.

Exxon reported an upset at its Baytown refinery that’s been ongoing for the past 24 hours.  It’s still unclear which units are impacted by this event, and whether or not it will have meaningful impacts on output. Total’s Pt Arthur facility also reported an upset yesterday, but that event lasted less than 90 minutes. Like most upsets in the region recently, traders seem to be shrugging off the news with gulf coast basis values not moving much. 

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

Pivotal Week For Price Action
Market TalkThursday, Sep 21 2023

The Yo-Yo Action In Diesel Continues With Each Day Alternating Between Big Gains And Big Losses So Far This Week

The yo-yo action in diesel continues with each day alternating between big gains and big losses so far this week. Today’s 11-cent rally is being blamed on reports that Russia is cutting exports of refined products effective immediately. It’s been a while since Russian sabre rattling has driven a noticeable price move in energy futures, after being a common occurrence at the start of the war. Just like tweets from our prior President however, these types of announcements seem to have a diminishing shelf-life, particularly given how the industry has adapted to the change in Russian export flows, so don’t be surprised if the early rally loses steam later today. 

The announcement also helped gasoline prices rally 5-cents off of their overnight lows, and cling to modest gains just above a penny in the early going. Before the announcement, RBOB futures were poised for a 5th straight day of losses.

IF the export ban lasts, that would be good news for US refiners that have seen their buyers in south American countries – most notably Brazil – reduce their purchases in favor of discounted barrels from Russia this year

US refinery runs dropped below year-ago levels for the first time in 6 weeks, with PADDS 1, 2 and 3 all seeing large declines at the start of a busy fall maintenance schedule.  Oil inventories continued to decline, despite the drop-in run rates and a big increase in the adjustment factor as oil exports surged back north of 5 million barrels/day. Keep in mind that as recently as 2011 the US only produced 5 million barrels of oil every day, and exports were mostly banned until 2016, so to be sending this many barrels overseas is truly a game changer for the global market.

Chicken or the egg?  Cushing OK oil stocks dropped below year-ago levels for the first time since January last week, which may be caused by the return of backwardation incenting shippers to lower inventory levels, the shift to new WTI Midland and Houston contracts as the export market expands.  Of course, the low inventory levels are also blamed for causing the backwardation in crude oil prices, and the shift to an export market may keep inventories at the NYMEX hub lower for longer as fewer shippers want to go inland with their barrels.

Refined product inventories remain near the bottom end of their seasonal ranges, with a healthy recovery in demand after last week’s holiday hangover helping keep stocks in check.  The biggest mover was a large jump in PADD 5 distillates, which was foreshadowed by the 30 cent drop in basis values the day prior.   The big story for gasoline on the week was a surge in exports to the highest level of the year, which is helping keep inventories relatively tight despite the driving season having ended 2 weeks ago.

As expected, the FED held rates yesterday, but the open market committee also included a note that they expected to raise rates one more time this year, which sparked a selloff in equity markets that trickled over into energy prices Wednesday afternoon. The correlation between energy and equities has been non-existent of late, and already this morning we’re seeing products up despite equities pointing lower, so it doesn’t look like the FOMC announcement will have a lasting impact on fuel prices this time around.

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