US Stock Markets Had Their Best Day In 4 Months
After a choppy morning that saw ULSD prices give up nickel gains and turn negative, the bulls stepped back in and pushed all energy prices emphatically higher in afternoon trading. Both gasoline and diesel futures ended with 6 cent gains, while oil contracts gained $2/barrel in what appears to have been a reaction to risk becoming in favor again as financial markets far and wide are acting like the FED is done raising rates.
US stock markets had their best day in 4 months, and the US Dollar dropped sharply as investors reacted to the FED chairs guarded statements following the FOMC announcement. Even though the daily correlation between energy contracts and equities and currency markets has been weak lately, the timing of the moves suggests there was at least some spillover contributing to the big rally in an otherwise quiet news day for energy contracts.
Despite yesterday’s big gain, and some overnight buying that’s losing its momentum around 7:45 central, the bearish weekly trend lines are still intact, and continue to favor lower prices unless we see another rally of a nickel or more in products to break out of this pattern.
Bad news is good news: The October payroll report showed 150,000 jobs were added during the month, and the prior 2 months were revised lower by 101,000 jobs, bringing the total growth to a much lower total than most published estimates, which adds fuel to the FED is finished fury and is continuing to put another bid under equity futures in the early going. The official unemployment rate ticked up 1 tenth to 3.9% while the U-6 rate ticked up 2 tenths to 7.2%.
But when will it actually produce gasoline and diesel? The Dangote refinery in Nigeria has been a big 650mb/day wildcard for the Atlantic refining basin over the past year. The plant was commissioned in May to give the outgoing President something to celebrate, even though it wasn’t operating. Last month there were reports that the facility had bought its first crude cargoes and today there are reports that the facility will source its own crude for test runs in December, but still, no one knows whether or not the plant is ready to actually make refined products yet. Along with the mysterious reality of the new Dos Bocas refinery in Mexico, there’s theoretically 1 million barrels per day of capacity that could come online just in time for US refiners not to need it, that could make 2024 look pretty bleak for margins.
Flint hills reported its 3rd upset of the week at its Corpus Christi west facility, after a leak was found in an isomerization unit. That facility has seemed to struggle to return to normal operations since a power outage knocked all of the local refineries offline a couple weeks back, but allocations in the major markets fed by those plants seem to be in decent shape so far.
Click here to download a PDF of today's TACenergy Market Talk.
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View All“Buy The Rumor, Sell The News” Seems To Be The Trading Pattern Of The Week
“Buy the Rumor, Sell the News” seems to be the trading pattern of the week as oil and refined products dropped sharply Thursday after OPEC & Friends announced another round of output cuts for the first quarter of next year.
Part of the reason for the decline following that report is that it appears that the cartel wasn’t able to reach an official agreement on the plan for next year, prompting those that could volunteer their own production cuts without forcing restrictions on others. In addition, OPEC members not named Saudi Arabia are notorious for exceeding official quotas when they are able to, and Russia appears to be (surprise) playing games by announcing a cut that is made up of both crude oil and refined products, which are already restricted and thus allow an incremental increase of exports.
Diesel futures are leading the way lower this morning, following a 13-cent drop from their morning highs Thursday, and came within 3-cents of a new 4-month low overnight. The prompt contract did leave a gap on the chart due to the backwardation between December and January contracts, which cut out another nickel from up front values.
Gasoline futures meanwhile are down 15-cents from yesterday’s pre-OPEC highs and are just 7-cents away from reaching a new 1-year low.
Cash markets across most of the country are looking soft as they often do this time of year, with double digit discounts to futures becoming the rule across the Gulf Coast and Mid Continent. The West Coast is mixed with diesel prices seeing big discounts in San Francisco, despite multiple refinery upsets this week, while LA clings to small premiums.
Ethanol prices continue to hold near multi-year lows this week as controversy over the fuel swirls. Corn growing states filed a motion this week trying to compel the courts to force the EPA to waive pollution laws to allow E15 blends. Meanwhile, the desire to grow even more corn to produce Jet Fuel is being hotly debated as the environmental impacts depend on which side of the food to fuel lobby you talk to.
The chaotic canal congestion in Panama is getting worse as authorities are continuing to reduce the daily number of ships transiting due to low water levels. Those delays are hitting many industries, energy included, and are now spilling over to one of the world’s other key shipping bottlenecks.
Click here to download a PDF of today's TACenergy Market Talk.
No Official Word From OPEC Yet On Their Output Agreement For Next Year
Energy prices are pushing higher to start Thursday’s session after a big bounce Wednesday helped the complex maintain its upward momentum for the week.
There’s no official word from OPEC yet on their output agreement for next year, but the rumor-mill is in high gear as always leading up to the official announcement, if one is actually made at all. A Reuters article this morning suggests that “sources” believe Saudi Arabia will continue leading the cartel with a voluntary output cut of around 1-million BPD to begin the year and given the recent drop in prices that seems like a logical move.
We saw heavy selling in the immediate wake of the DOE’s weekly report Wednesday, only to see prices reverse course sharply later in the day. ULSD was down more than 9-cents for a few minutes following the report but bounced more than 7-cents in the afternoon and is leading the push higher this morning so far.
It’s common to see demand drop sharply following a holiday, particularly for diesel as many commercial users simply shut down their operations for several days, but last week’s drop in implied diesel demand was one of the largest on record for the DOE’s estimates. That drop in demand, along with higher refinery runs, helped push diesel inventories higher in all markets, and the weekly days of supply estimate jumped from below the 5-year seasonal range around 25 days of supply to above the high end of the range at 37 days of supply based on last week’s estimated usage although it’s all but guaranteed we’ll see a correction higher in demand next week.
Gasoline demand also slumped, dropping to the low end of the seasonal range, and below year-ago levels for the first time in 5-weeks. You’d never guess that based on the bounce in gasoline prices that followed the DOE’s report however, with traders appearing to bet that the demand slump in a seasonal anomaly and tighter than average inventories may drive a counter-seasonal price rally.
Refinery runs increased across the country as plants returned to service following the busiest fall maintenance season in at least 4-years. While total refinery run rates are still below last year’s levels, they’re now above the 5-year average with more room to increase as no major upsets have been reported to keep a large amount of throughput offline.
The exception to the refinery run ramp up comes from PADD 4 which was the only region to see a decline last week after Suncor apparently had another inopportune upset at its beleaguered facility outside Denver.
The 2023 Atlantic Hurricane season officially ends today, and it will go down as the 4th most active season on record, even though it certainly didn’t feel too severe given that the US dodged most of the storms.
Today is also the expiration day for December 2023 ULSD and RBOB futures so look to the January contracts (RBF and HOF) for price direction if your market hasn’t already rolled.
More refineries ready to change hands next year? With Citgo scheduled to be auctioned off, Irving Oil undergoing a strategic evaluation, and multiple new refineries possibly coming online, 2024 was already looking to be a turbulent year for refinery owners. Phillips 66 was indicating that it may sell off some of its refinery assets, but a new activist investor may upend those plans, along with the company’s directors.