US Stock Markets Saw Their Biggest Daily Reversal In Almost 2 Years Thursday

Market TalkFriday, Oct 14 2022
Pivotal Week For Price Action

US stock markets saw their biggest daily reversal in almost 2 years Thursday, turning heavy early losses into huge gains. Those swings trickled over into energy markets, adding to the volatility we’ve already become accustomed to in October.

While the swings in futures so far in October have been impressive, the moves in basis values have been epic. After witnessing a $2/gallon collapse in West Coast gasoline values last week, we’ve saw some historic moves in diesel Thursday.

Pretty much everyone that watches West Coast spot markets knew that LA CARB diesel was in for a big drop Thursday, after the other diesel contracts in the region had dropped sharply earlier in the week, but pricing agencies left the CARB diesel unchanged due to a lack of trading activity.  While everyone knew a big drop was coming, it’s safe to say that pretty much nobody expected those values to drop more than 78 cents in a day, from +5300 to -2500, which marks a record single day decline for distillates. Ironically, this move happened on the same day that the DOE reported West Coast diesel stocks reached a 3 year low.

We’ve seen bigger drops in gasoline basis in a single day (just last week actually), but I don’t know that any US cash market has ever seen such a swing from a big positive number (which implies very tight supplies) to a big negative (which usually accompanies a glut of product) in just one session. Of course the extreme moves in the ULSD calendar spreads are heavily influencing the daily basis swings, as -2500 vs November futures is the equivalent +1500 vs December futures, and that’s historically a strong basis value for this time of year on the West Coast.

In the other corner of the country, and side of the extreme moves, NY Harbor basis values continued their runaway rally, adding another 25 cents Thursday to now trade 75 cents over November Futures, also known as $1/gallon more than LA CARB diesel , after trading a penny below its West Coast counterpart just 1 day prior.  That 75 cent premium is the 2nd highest level recorded for NYH ULSD, and could certainly threaten the record north of $1.22 that was set during the chaotic spring trading after the war in Ukraine broke out.  The spread between ULSD values today in New York and at year end is approaching $1.30/gallon. 

November ULSD futures came within 5 points of reaching their August high of $4.1154 Thursday, before pulling back slightly ahead of the close, and moving lower overnight. That move is close enough to complete the “W” pattern on the daily charts and may set up a period of sideways trading as traders consolidate positions. That $4.11 level is looking pivotal for the back half of October as a break there leaves room on the charts for a run to $4.50, while a failure will make this look like a short term double top that could push prices sharply lower.  Given the chaos in cash markets, expect some more fireworks over the next 2 weeks. 

Notes from the DOE’s weekly status report: 

US Crude stocks climbed on the week, and nearly reached the 5 year seasonal average for the first time in 18 months. That said, the increase was once again primarily driven by the ongoing release of barrels from the SPR, which are totally more than 7 million barrels every week.  US oil production dipped for the 2nd time in 3 weeks and is holding at levels we saw 6 months ago.

Diesel stocks in the US dropped once again, and touched 24.2 days of supply based on the DOE’s demand estimate, which marks the lowest level in the 20+ years of data available.  US production of diesel is holding at nearly 1.5 million barrels/day more than the country consumes but record exports are continuing to cause traders to need to pay up to keep barrels at home.

Gasoline demand estimates from the DOE dropped by 1.2 million barrels/day last week, from the top end of the seasonal range, to below the levels we saw this time in 2020. That number is a good reminder of how challenging it is to reliably calculate demand on a short term basis, and that the driving season has officially closed and consumption typically creeps lower for the next 3 months.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.

Market Talk Update 10.14.2022

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Market TalkFriday, May 24 2024

Selling Continues In Energy Markets After Thursday's Reversal Rally Ran Out Of Steam In The Afternoon

The selling continues in energy markets after Thursday’s reversal rally ran out of steam in the afternoon, following the lead of U.S. equity markets which had a big sell-off on the day. Prices haven’t yet fallen below the multi-month lows we saw early last week, but we’re just a couple of cents away from those levels, and the potential technical trapdoor that could lead to sharply lower values over the next couple of weeks.

We did see a brief spike in gasoline futures after the settlement Thursday following reports that Colonial had shut down Line 4 due to an IT issue, but those gains were short-lived as the pipeline was restarted without issue a few hours later. Those who remember the chaos of May 2021 after Colonial was hacked are breathing a sigh of relief, particularly on one of the busiest demand days of the year, while others are no doubt disappointed we won’t get to see the rash of fake photos of people filling up plastic bags with gasoline.

OPEC & Friends (AKA the DoC) announced they’re moving June’s policy meeting to a virtual-only affair, which the market is taking as a signal of the status quo being held on output cuts.

Chicago being Chicago: Tuesday’s 60-cent basis spike was officially wiped out by Thursday afternoon, suggesting the short-lived rally was just short covering in an illiquid market rather than a meaningful supply disruption.

RIN values continued their rally this week, touching a 4-month high at 59 cents/RIN for both D4 and D6 values Thursday. If you believe in technical analysis on something like RINs, you can see a “W” pattern formed on the charts, suggesting a run to the 80-cent range is coming if prices can get above 60. If you are more of a fundamentalist, then you’ll probably think this rally is probably more short-term short-covering by producers of RD who have changed their schedule buying back their RIN hedges for volume they’re no longer planning to produce.

NOAA issued its most aggressive Hurricane forecast ever Thursday, joining numerous other groups that think a La Nina pattern and record warm waters will create more and bigger storms this year. With the activity level seeming to be a foregone conclusion at this point, now it’s all about where those storms hit to know if this busy season will be a huge factor in energy supplies like we saw in 2005, 2008, 2012 and 2017. With the Houston area already being bombarded by floods and deadly wind this year, the refinery row across the U.S. Gulf Coast seems even more vulnerable than normal to the effects of a storm.

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

Pivotal Week For Price Action
Market TalkThursday, May 23 2024

Gasoline Prices Have Finally Found A Bid, Trading Up 3 Cents On The Day

Gasoline prices have finally found a bid, trading up 3 cents on the day after coming within a penny and a quarter of the multi-month lows set last week overnight. ULSD prices are also up a couple of cents in the early going after wiping out the gains they made last week. Both contracts are once again threatening a technical breakdown that could push prices another 20-30 cents lower if the current bounce isn’t sustained.

The EIA’s estimate for gasoline demand surged to a 7-month high last week, capping off a 4th straight week of gains that puts total consumption near the top end of the seasonal range after a very sluggish start to the year. AAA estimates that travel this Memorial Day weekend will approach a 20 year high with nearly 44 million people hitting the roads.

The EIA also published a note this morning showing average US gasoline prices are up 1% from last year, accompanied by a chart showing that average prices are down 7 cents/gallon from this time last year. The spread between retail gasoline prices on the West Coast vs the rest of the country continues to grow and is shown to be over $1.20/gallon thanks to Oregon and Washington’s Californication of their energy policies in recent years.

The EIA still seems to be struggling to figure out its accounting methods for crude oil inventories, with the adjustment factor that’s been creating all sorts of confusion the past couple of years flipping from a negative 200,000 barrels/day last week, to a positive 1.4 million barrels/day this week. You could give the EIA compilation crew a break and say that this reflects just how large and complex the US crude oil supply network is, or you could ask how did they suddenly “find” 10-million barrels of oil that they didn’t see last week.

Refiners are cranking up run rates, exceeding the levels we’ve seen this time of year in either of the past 2 years. Those higher run rates are added to the glut of diesel products that’s hanging over the majority of the country, and pushing rack spreads to levels we haven’t seen since the COVID lockdown in several markets.

The export market for US crude and refined products remains very busy with nearly 10 million barrels shipped out of the country every day. Refinery throughput was 16.2 million barrels/day last week, and more than 6 million barrels/day was exported even though gasoline and diesel exports have stagnated this year. The anticipated tick higher in US diesel exports following the rash of Russian refinery attacks has not materialized, which is no doubt contributing to the negative sentiment for diesel prices over the past month. The busy and growing export market for crude and other products also creates an interesting dynamic as we prepare for a busy hurricane season to kick off in a week as any disruption to infrastructure along the Gulf Coast could limit product going out of the country almost as much as it disrupts products flowing inland.

Basis values for RBOB in Chicago dropped 30 cents Wednesday after Tuesday’s 60 cent spike. It’s still unclear what if any impacts the confirmed fire at Exxon’s Joliet refinery, or the rumored upsets at BP’s Whiting facility have had on actual supply in the region, but the quick pullback suggests this is a flash in the pan rather than the start of a prolonged supply shortage.

Exxon reported a leak at its Beaumont TX Chemical plant, but it appears that upset isn’t impacting the operations at its adjacent refinery.

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