Volatile Week Of Trading

Market TalkMonday, Nov 2 2020
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A volatile week of trading was expected as the world anxiously awaits the U.S. election, and the early results have not disappointed.

WTI just turned positive after being down $2/barrel overnight, and refined products are trading a nickel above the lows set in the first 10 minutes of Sunday night’s session. Stronger equity markets, credited to a Chinese manufacturing report reaching a 10 year high, seem to be helping prices look past the risk of more COVID lockdowns for now.   

The 5% bounce sets a good short term layer of technical support at the overnight lows $33.64 for WTI, $.97 for RBOB and $1.02 for ULSD. That support may be tested again as longer term charts continue to favor another move lower, and likely a longer-lasting move below $1 for refined products.

Marathon reported a $1 billion loss for the third quarter this morning, with its refining and marketing segment losing more than $1.5 billion (compared to earnings of nearly $1 billion a year ago) which was partially offset by strong earnings in its mid-stream operations. The results also included $433 million in impairment expenses primarily due to “repositioning the Martinez refinery” and $348 million in restructuring expenses related to idling two refineries and their workforce reduction. The sale of Speedway is still on track for Q1 2021, and renewable diesel production is starting at its Dickinson, ND facility. 

Baker Hughes reported 10 more oil rigs were put to work last week, a sixth consecutive weekly gain. Nine rigs were added in the Permian basin, and one was added in the Eagle Ford.  With the recent selloff in prices, it seems like we might see the recovery stall out over the next month or so as operations catch up with prices. 

Money managers continue to seem unenthusiastic about energy contracts.  The large-speculative category of trader made small reductions in the length held in WTI and RBOB positions last week, made a small increase in the short position in ULSD, and a small increase in Brent length. Open Interest in Brent dropped to its lowest in two years.

Hurricane Eta formed in the Caribbean over the weekend, continuing 2020’s record setting storm streak. This hurricane is not a threat to the U.S. however as it is expected to make landfall in Nicaragua Tuesday.

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Pivotal Week For Price Action
Market TalkFriday, Dec 9 2022

Energy Futures Are Seeing Modest Gains To Start Friday’s Session

Energy futures are seeing modest gains to start Friday’s session, limping towards the finish line of a week that’s pushed prices to their lowest levels of the year, and cut 20-30 cents off of refined products. 

WTI futures have had a fairly muted reaction to news that the Keystone pipeline was forced to shut after more than ½ million gallons reportedly spilled into a Kansas creek this week. A timeline for restart is still unclear, but so far the price action suggests refiners aren’t panicking about where they’ll find replacement barrels, and those north of the spill may be rewarded with discounted barrels that now find themselves stranded, such as Western Canadian Select which is now trading down to $50/barrel.  

If RBOB can finish in the green today, it would mark the first trading day so far in December where the gasoline contract didn’t end lower, after 6 straight losing sessions. Cash markets are also looking weak, as the spread between gasoline prices in New York and the Gulf Coast dropped to its lowest level since early October this week, putting downward pressure on the price to lease space on Colonial’s Line 1. With refiners running full out to capture huge diesel margins, gasoline is becoming an unwelcome byproduct in many markets, and could become oversupplied in some regions in the near future, which could force some plants to reduce run rates. 

Distillate prices are seeing a similar convergence with the spread between Gulf and East coasts now less than 30 cents/gallon, which is more than $1/gallon lower than it was a month ago. Softer demand for both products due to the seasonal slowdown in gasoline and unseasonably warm weather limiting Heating Oil consumption are both getting credit for these cash markets suddenly returning to something more closely resembling what we’re used to seeing. 

Bad news is good news for stock markets as any negative data points may give the FED reason to slow their interest rate hikes.  Yesterday we saw stocks rally after an increase in jobless claims in the US. Today we’re seeing stocks give back some of yesterday’s gains after the PPI report showed inflation is remaining stubbornly high and above many forecasts, giving the FED another reason to continue with its tightening. Energy contracts continue to have a weak correlation to daily moves in equity prices, so it’s not too surprising we are seeing a small rally today even though stocks are pulling back.

Chinese refiners are racing to take advantage of liberal quotas this year and are expected to reach a record level of refined fuel exports this month.  Those supplies have provided a much needed supplement for a world short on distillates, but there are many questions and few answers about what they’ll look like next year.

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

Pivotal Week For Price Action
Market TalkThursday, Dec 8 2022

Refined Product Prices Are Bouncing Moderately This Morning After Selling Off Heavily For A Fifth Consecutive Trading Session Yesterday

Refined product prices are bouncing moderately this morning after selling off heavily for a fifth consecutive trading session yesterday. Heating oil futures have dropped over 50 cents per gallon since the beginning of the month as traders reconcile rebounding national distillate inventories, a warmer-than-expected European winter, dismal Chinese demand outlook, and the execution of the ban on Russian oil exports. Gasoline futures have dropped just over 25 cents so far in December while the West Texas Intermediate crude oil contract has fallen just $5 per barrel since last week.

The Department of Energy reported a 5.2 million barrel draw in crude oil inventories last week, marking the fourth consecutive week of stockpile drawdowns. On the flip side, national gasoline and diesel stocks likewise grew for the fourth week in a row, which makes sense given refineries are running near their 5-year seasonal high. Total refined product demand continued to sink, as typical of this time of year before everyone jumps in their cars to drive to grandma’s for Christmas.  

Oil futures have fallen below the $80 mark this week and have now given up all gains seen since Russia invaded Ukraine. While China’s relaxation of their pandemic policy should provide some upward pressure on oil prices, in theory, it seems most aren’t convinced the lack of restrictions will translate to increased petroleum demand.

Premiums to ship gasoline and diesel on the Colonial Pipeline (the main US’s petroleum artery going from Houston to New York) have dropped significantly over the past few days. Shippers can now move gasoline up the Eastern seaboard for “only” 9 cents above the pipeline’s tariff, which is the lowest its been since October. Moving diesel to the Northeast will run you 7 cents over costs.

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

Pivotal Week For Price Action
Market TalkWednesday, Dec 7 2022

The Downward Price Action Seen In Monday’s Trading Session Continued Into Tuesday

The downward price action seen in Monday’s trading session continued into Tuesday and energy futures charts are poised to test some significant resistance levels. Most notably, the prompt month ULSD futures contract is set to test its 100-week moving average at the ~$2.80 level, beyond which the path is open for prices to fall down to the $2.20s.

WTI crude oil futures face a tough test these next couple months as it bears down on its 200-month moving average which, if broken, could lead prices down to the $65 range. The energy complex is bouncing this morning, albeit moderately, on the news that China is abandoning its COVID testing and quarantine protocols. The mild upward price action suggests traders are hesitant to believe that will translate to a return of energy demand.

The Energy Information Administration published its monthly Short Term Energy Outlook yesterday, highlighting its higher-than-expected global oil inventory level estimate for 2023. The EIA also noted that the execution of the ban on Russian seaborne petroleum products by the European Union has rendered the future of distillate remarkedly hazy. Price direction for diesel’s home-heating counterpart seems a little easier to forecast: moderately higher prices are expected through January as winter sets in and demand ramps up.

The American Petroleum Institute reported a sizeable 6.4 million barrel draw in US crude oil inventories last week, along with builds in refined product stocks of 5.9 million barrels and 3.6 million barrels of gasoline and diesel, respectively. The official report published by the Department of Energy is due to come out at its regular time this morning (9:30am CST) and its confirmation or contradiction of the API’s estimate will likely determine the day’s trading sentiment.

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