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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Pivotal Week For Price Action
Pivotal Week For Price Action
Market TalkThursday, Feb 22 2024

RBOB And ULSD Futures Down Around 2.5 Cents After A Mixed Performance Wednesday

Refined products are leading the energy complex lower to start Thursday’s trading with both RBOB and ULSD futures down around 2.5 cents after a mixed performance Wednesday.

The API reported another large build in crude oil inventories last week, with inventories up more than 7 million barrels while gasoline inventories increased by 415,000 barrels and diesel stocks dropped by 2.9 million. The crude oil build was no doubt aided once again by the shutdown of BP’s Whiting refinery that takes nearly ½ million barrels/day of oil demand out of the market. That facility is said to be ramping up operations this week, while full run rates aren’t expected again until March. The DOE’s weekly report will be out at 11am eastern this morning.

Too much or not enough? Tuesday there were reports that the KM pipeline system in California was forced to shut down two-line segments and cut batches in a third due to a lack of storage capacity as heavy rains have sapped demand in the region. Wednesday there were new reports that some products ran out of renewable diesel because of those pipeline delays, bringing back memories of the early COVID lockdown days when an excess of gasoline caused numerous outages of diesel.

The Panama Canal Authority has announced $8.5 billion in sustainability investments planned for the next 5 years. Most of those funds are aimed at sustainability efforts like modernizing equipment and installing solar panels, while around $2 billion is intended for a better water management system to combat the challenges they’ve faced with lower water levels restricting transit by 50% or more in the past year. More importantly in the near term, forecasts for the end of the El Nino pattern that contributed to a record drought, and the beginning of a La Nina pattern that tends to bring more rain to the region are expected to help improve water levels starting this summer.

The bad news is that La Nina pattern, coupled with historically warm water temperature has Accuweather forecasters sounding “Alarm Bells” over a “supercharged” hurricane season this year. Other years with a similar La Nina were 2005 which produced Katrina, Rita and Wilma and 2020 when we ran out of names, and the gulf Coast was repeatedly pummeled but markets didn’t react much due to the COVID demand slump. Perhaps most concerning for the refining industry is that unlike the past couple of years when Florida had the bullseye, the Texas coast is forecast to be at higher risk this year.

RIN prices continued their slide Wednesday morning, trading down to 38 cents/RIN before finally finding a bid that pushed values back to the 41-42 cent range by the end of the day.

The huge slide in RIN values showed up as a benefit in Suncor’s Q4 earnings report this morning, as the Renewable Volume Obligation for the company dropped to $4.75/barrel vs $8.55/barrel in Q4 of 2022. Based on the continued drop so far in 2024, expect that obligation to be nearly cut in half again. Suncor continued the trend of pretty much every other refiner this quarter, showing a dramatic drop in margins from the record-setting levels in 2022, but unlike a few of its counterparts over the past week was able to maintain positive earnings. The company noted an increase in refining runs after recovering from the Christmas Eve blizzard in 2022 that took down its Denver facility for months but did not mention any of the environmental challenges that facility is facing.

Valero’s McKee refinery reported a flaring event Wednesday that impacted multiple unites and lasted almost 24 hours. Meanwhile, Total reported more flaring at its Pt Arthur facility as that plant continues to struggle through restart after being knocked offline by the January deep freeze.

Speaking of which, the US Chemical Safety board released an update on its investigation into the fire at Marathon’s Martinez CA renewable diesel plant last November, noting how the complications of start -up leave refineries of all types vulnerable.

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Pivotal Week For Price Action
Market TalkWednesday, Feb 21 2024

It’s A Mixed Start For Energy Markets To Start Wednesday’s Session After A Heavy Round Of Selling Tuesday

It’s a mixed start for energy markets to start Wednesday’s session after a heavy round of selling Tuesday. RBOB gasoline futures are clinging to modest gains in the early going while the rest of the complex is moving lower.  

WTI is pulling back for a 2nd day after reaching a 3.5 month high just shy of $80. The pullback pushes prompt values back below the 200-day moving average, reducing the likelihood of a breakout to the upside near term.

ULSD values are down nearly 10 cents for the week and are down more than 26 cents from the high trade set February 9th. That pullback leaves ULSD in neutral territory and could act as a headwind for gasoline prices that still seem poised to at least attempt a typical spring rally that adds roughly 20-30% from winter values.

RIN prices continue their slide this week, with D6 and D4 values reaching new 4-year lows around $.41/RIN Tuesday, which is down just slightly from the $1.62/RIN they were going for a year ago.

HF Sinclair reported a loss for Q4 this morning, with its refining and renewables segments each losing roughly $75 million for the quarter. The change from a year ago in the refining segment is a harsh reminder of the cyclical nature of the business as earnings dropped more than $800 million year on year, with inventory cost adjustments accounting for roughly ¼ of that decline.   

While it wasn’t mentioned in the press release, HFS has the most direct exposure to New Mexico’s recent approval of a clean fuel standard that will start in 2026. That law will no doubt help the company’s struggling Renewables assets in the state but will also create extra costs for their traditional refining operations.

The EIA this morning noted that conditions in the Panama Canal improved slightly in January, allowing Gulf Coast exports to Asia, primarily of Propane and ethane, to increase. While transit capacity is still far below levels we saw before the drought reduced operations in the canal, any improvement offers welcome relief to shippers as they can avoid going the long-way around to avoid the violence in the Red Sea.

France’s navy didn’t waste any time getting into the Red Sea action, shooting down a pair of Houthi Drones less than a day after joining the EU’s official mission to assist in clearing the shipping lanes. It’s not yet clear whether this marks the first official military victory by the French since Napoleon. 

Reminder that the weekly inventory reports are delayed a day due to the holiday Monday.

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