Volatility And Uncertainty Continue Dominant Market Themes After Weekend Of Extraordinary Intervention By Central Banks
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.
Click here to download a PDF of today's TACenergy Market Talk Update.
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Refined Products Bounce Back And Forth Across The Break-Even Line To Start Friday’s Trading
The choppy action continues for energy markets with refined products bouncing back and forth across the break-even line to start Friday’s trading after some big swings Thursday.
RBOB futures led the rollercoaster ride Thursday, trading up 4 cents in the early morning hours, only to see those gains turn into 10 cent losses mid-morning, and then erasing most of those losses in the early afternoon following an ENT report of unplanned maintenance at the largest refinery on the East Coast.
The selling portion of the ride was blamed on a combination of an increase in jobless claims, and the disruptive impacts of the Canadian wildfires on the major population centers along the East Coast. While air traffic has been disrupted, so far there are not any reports of delays in ship traffic around the New York Harbor, and the strong basis and time spreads we’ve seen in NY have been easing this week, so it appears that this event is more concerning to the demand side of the equation than supply.
From a technical perspective, it’s not surprising to see this type of back-and-forth action as most petroleum contracts look to be stuck in neutral territory on the charts, which encourages trading programs to sell as prices get towards the top end of a range, and buy when it gets to the low end.
The Atlantic Hurricane season is off to a quiet start with no tropical development expected over the next week, but NOAA did issue an El Nino advisory Thursday that suggests the warm-water pattern in the Pacific could reach “supersized” levels and create all sorts of disruptive events. Perhaps most notable in the report is that forecasters don’t believe this year’s El Nino will have the same dampening impact on Atlantic hurricanes due to record warm temperatures in the water. Here’s a brief recap in case you missed the most memorable El Nino from 25 years ago.
Click here to download a PDF of today's TACenergy Market Talk.
Gasoline Futures Rally Despite Inventory Builds, Increased Throughput
Gasoline futures led another strong rally in the energy complex Wednesday and continued marching higher overnight before pulling back to near break-even levels around 7:45am central.
The RBOB contract has now wiped out the post-Memorial Day selloff, and erased the losses from the contract roll to July, setting up another test of the May highs at $2.73. If that resistance breaks, there’s a good chance we see another run at the $2.90 level, but if it holds we are probably still stuck in a sideways pattern as we move through the summer months. West Coast gasoline prices meanwhile have reached a 3-month high as surging basis values compound the move in futures.
The rally came despite healthy inventory builds for refined products and strong refinery runs across all 5 PADDs reported last week, with traders (or their algorithms) appearing to focus instead on healthy demand estimates in the DOE’s weekly status report. Gasoline also saw healthy exports last week, while diesel shipments overseas continued their decline which has helped keep downward pressure on diesel prices, which is essentially the polar opposite of what we were experiencing a year ago.
Lies, damned Lies and statistics: PADD 3 refinery utilization hit 98.8% of the official capacity figure last week, which would mark a 5 year high, except the numbers are wrong. The DOE still isn’t including recent capacity additions of almost 300mb/day in those stats, so the actual figure is about 3% lower. Don’t worry though, the lack of accurate data probably isn’t intentional. The DOE recently announced it was suspending data collection for some of its monthly reports as the agency is still struggling to overcome the IT Systems failure they experienced a year ago. Add this to the realization that the official crude production and petroleum demand figures have been incorrect due to a lack of clarity surrounding condensate production that comes along with oil output.
Speaking of which, the official US Oil output figure surged to the highest levels since the COVID lockdowns began more than 3 years ago last week. No word from the EIA if this means actual production increased, or if they’ve just changed the way they’re reporting the molecules coming out of the ground.
Irving Oil released a statement highlighting a strategic review of the company, that could include selling the business that’s been held by the Irving family for nearly 100 years. The Irving Refinery in New Brunswick is Canada’s largest at 300mb/day and is the largest importer of fuels into the northeastern US. Critics are arguing that the review is an attempt to politicize Canada’s Clean Fuel Regulation that could weigh on the refinery’s profitability when it goes into full effect in July or could simply incentivize the facility to send more product to the US.
RIN values saw their first bounce in a couple of weeks, with both D6 and D4 values climbing back above the $1.40 mark after their recent slide from the mid $1.50s. We’re still 6 days away from the EPA’s deadline to issue the final RFS ruling for the next couple of years.
Click here to download a PDF of today's TACenergy Market Talk.
Energy Prices Fluctuate: Chinese Imports Surge, Saudi Arabia Cuts Output and Buys Golf
Energy prices continue their back-and-forth trading, starting Wednesday’s session with modest gains, after a round of selling Tuesday wiped out the Saudi output cut bounce.
A surge in China’s imports of crude oil and natural gas seem to be the catalyst for the early move higher, even though weak export activity from the world’s largest fuel buyer suggests the global economy is still struggling.
New tactic? Saudi Arabia’s plan to voluntarily cut oil production by another 1 million barrels/day failed to sustain a rally in oil prices to start the week, so they bought the PGA tour.
The EIA’s monthly Short Term Energy Outlook raised its price forecast for oil, citing the Saudi cuts, and OPEC’s commitment to extend current production restrictions through 2024. The increase in prices comes despite reducing the forecast for US fuel consumption, as GDP growth projections continue to decline from previous estimates.
The report included a special article on diesel consumption, and its changing relationship with economic activity that does a good job of explaining why diesel prices are $2/gallon cheaper today than they were a year ago.
The API reported healthy builds in refined product inventories last week, with distillates up 4.5 million barrels while gasoline stocks were up 2.4 million barrels in the wake of Memorial Day. Crude inventories declined by 1.7 million barrels on the week. The DOE’s weekly report is due out at its normal time this morning.
We’re still waiting on the EPA’s final ruling on the Renewable Fuel Standard for the next few years, which is due a week from today, but another Reuters article suggests that eRINs will not be included in this round of making up the rules.
Click here to download a PDF of today's TACenergy Market Talk.