Volatility And Uncertainty Continue Dominant Market Themes After Weekend Of Extraordinary Intervention By Central Banks

Market TalkMonday, Mar 20 2023
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Volatility and uncertainty continue to be the dominant market themes after another weekend of extraordinary intervention by central banks to try and limit the fallout of the latest crisis of confidence in the system. 

We’ve already seen big swings in both energy and equity markets in the overnight sessions.  Bulls seem to be arguing that the coordinated actions by central banks and some of the world’s largest financial institutions are proving there will not be a liquidity crisis, while the bears seem to be saying, “If everything is fine, why did two of Europe’s largest banks just get forced into a shotgun wedding?”

Refined product prices dropped 9 cents at their lowest levels, but have since wiped out those losses and turned to modest gains in yet another sign of the choppy action that’s likely in the days ahead. WTI meanwhile set a fresh 15-month low before recovering most of its losses on the day, and charts suggest we could soon see prices in the $50 range if a recovery rally doesn’t come soon.

The CFTC announced Friday it was further delaying its Commitments of Traders reports as it needed to review the data after the cyber-attack that took out a service provider and has kept the position reporting at least 3 weeks behind schedule since early February. ICE continues to publish its weekly COT data on a normal schedule, and showed money managers bailing out of long positions in Brent and Gasoil contracts last week as prices plummeted, and a large amount of new speculative money came in to bet that prices would continue to fall, even though they’re already at 15-month lows. Given the price action we’ve seen in NYMEX contracts the past two weeks, it’s not hard to imagine a similar liquidation of long positions has been going on here as well.

Fed Fund futures traders are laying 37% odds the FOMC will stop their rate hikes this week, while 63% think they’ll continue to increase rates by 25 points according to the CME’s Fed watch tool. Two weeks ago, literally, no money was bet on the FED holding steady. The forward outlook shows that nearly 30% of the money is betting the FOMC will be lowering rates by the June meeting, compared to 0% betting that direction a month ago.

Baker Hughes reported US Oil rigs dropped by 1 last week to a new 9-month low, while natural gas rigs jumped by 9, setting a new 6-month high. That dichotomy was most obvious in the Eagle Ford basin where 6 oil rigs were taken offline, while 4 new gas rigs were added. The Marcellus shale accounted for the remainder of the increase in gas rigs, while the Permian saw a healthy increase of 5 oil rigs negated by the drop elsewhere.

Both Flint Hills and Citgo reported upsets at their Corpus Christi refineries Friday, following the cold front that battered the region with high winds and heavy rain Thursday. The filings made to the TCEQ suggest Citgo may have been forced to take an FCC unit offline, while FHR may have avoided any unit shutdowns during their event. Neither issue is likely to have much influence on Gulf Coast spot markets since Corpus Christi plants don’t touch the Colonial pipeline origin hubs, but they could create product tightness along the San Antonio, Austin, and DFW corridor if they continue.

More French refinery workers are walking off the job this week after pension reforms were passed by parliament last week. The impact of the protests may now turn from a nuisance to a more serious disruption as more facilities are expected to be taken offline.  

A worker at the CVR refinery in Coffeyville Kansas was killed over the weekend, as that facility was undergoing planned maintenance. No reports yet as to the cause of that incident, or the potential long-term impact.

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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.

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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.

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Pivotal Week For Price Action