Volatility Returns To The Energy Arena

Market TalkFriday, Mar 26 2021
Pivotal Week For Price Action

March madness is not disappointing this year as volatility returns to the energy arena, making 5% price swings a common occurrence. This week’s action has been a rollercoaster with huge selloffs Tuesday and Thursday surrounded by strong rallies Monday, Wednesday and Friday that have kept the selling that started last week from snowballing into an outright price collapse.

When this type of wild back and forth action happens, it helps to look at the weekly charts to get a sense for the bigger picture, and to see that despite multiple days of 8 cent or greater moves, ULSD futures are only down 2 cents on the week, while RBOB prices are up 1.5, and those small net moves have done little to change the technical outlook going forward. That said, this type of manic price movement is often seen at the end of a trend, so there’s still a strong case to be made that after a huge rally from November-March, lower prices are coming, and could be here soon if chart support breaks next week.

The Suez canal blockage continues to be a major story this week, with new estimates suggesting it may take weeks not days to clear the stranded ship. While that continues to be an easy headline to pin the blame on a rally, it doesn’t explain why oil and product prices 6 months forward are rallying about the same amount this morning.  

On the flip side, European COVID lockdowns are the easy smoking gun for the days when prices collapse, even though it would be hard to justify prices 1 year forward dropping due to those temporary measures. The drop in European demand should also help limit the fallout from the Suez canal blockage that’s keeping some 3 million barrels/day of oil and refined products stranded at sea.

There does seem to be a “risk on” vs. “risk off” feel to the wild back and forth this week, even though the correlation between daily price moves between equity, currency and energy markets is almost non-existent.  

Today’s refining lesson: Don’t rain oil on your neighbors. The EPA announced it was pulling an expansion permit for the Limetree Bay (FKS Hovensa) refinery in St. Croix after multiple lawsuits filed to challenge its restart. It’s important to note that decision will not halt operations at the refinery, but will make expansion a challenge, and given the events of the past two months feels like just the start of the regulatory changes coming. For those that were around when Hovensa was operating, its location and ability to import barrels all along the U.S. East Coast often gave its operations an outsized influence on (NY Harbor based) RBOB and ULSD prices.

The Dallas Fed’s energy survey for March showed a strong recovery in oil and gas operations as producers that had been on the brink for much of the past year took advantage of the rally in prices. Continued expansion is predicted in the survey results, and the chart of break evens shows that we should see operations continue to increase with just about all basins securely in the black at current price levels.

Los Angeles has revealed a study that would allow it to use 100% renewable energy sources to power its electric grid by 2035, even as it remains one of the only coal burning municipalities left in the state. The plan is simple: “Build solar farms, wind turbines and batteries as fast as possible.” The plan to pay for it is: not part of the study. 

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

TACenergy Market Talk Update 3.26.21

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Pivotal Week For Price Action
Market TalkMonday, Oct 2 2023

Gasoline Futures Are Leading The Energy Complex Higher This Morning With 1.5% Gains So Far In Pre-Market Trading

Gasoline futures are leading the energy complex higher this morning with 1.5% gains so far in pre-market trading. Heating oil futures are following close behind, exchanging hands 4.5 cents higher than Friday’s settlement (↑1.3%) while American and European crude oil futures trade modestly higher in sympathy.

The world’s largest oil cartel is scheduled to meet this Wednesday but is unlikely they will alter their supply cuts regimen. The months-long rally in oil prices, however, has some thinking Saudi Arabia might being to ease their incremental, voluntary supply cuts.

Tropical storm Rina has dissolved over the weekend, leaving the relatively tenured Philippe the sole point of focus in the Atlantic storm basin. While he is expected to strengthen into a hurricane by the end of this week, most projections keep Philippe out to sea, with a non-zero percent chance he makes landfall in Nova Scotia or Maine.

Unsurprisingly the CFTC reported a 6.8% increase in money manager net positions in WTI futures last week as speculative bettors piled on their bullish bets. While $100 oil is being shoutedfromeveryrooftop, we’ve yet to see that conviction on the charts: open interest on WTI futures is far below that of the last ~7 years.

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

Pivotal Week For Price Action
Market TalkFriday, Sep 29 2023

The Energy Bulls Are On The Run This Morning, Lead By Heating And Crude Oil Futures

The energy bulls are on the run this morning, lead by heating and crude oil futures. The November HO contract is trading ~7.5 cents per gallon (2.3%) higher while WTI is bumped $1.24 per barrel (1.3%) so far in pre-market trading. Their gasoline counterpart is rallying in sympathy with .3% gains to start the day.

The October contracts for both RBOB and HO expire today, and while trading action looks to be pretty tame so far, it isn’t a rare occurrence to see some big price swings on expiring contracts as traders look to close their positions. It should be noted that the only physical market pricing still pricing their product off of October futures, while the rest of the nation already switched to the November contract over the last week or so.

We’ve now got two named storms in the Atlantic, Philippe and Rina, but both aren’t expected to develop into major storms. While most models show both storms staying out to sea, the European model for weather forecasting shows there is a possibility that Philippe gets close enough to the Northeast to bring rain to the area, but not much else.

The term “$100 oil” is starting to pop up in headlines more and more mostly because WTI settled above the $90 level back on Tuesday, but partially because it’s a nice round number that’s easy to yell in debates or hear about from your father-in-law on the golf course. While the prospect of sustained high energy prices could be harmful to the economy, its important to note that the current short supply environment is voluntary. The spigot could be turned back on at any point, which could topple oil prices in short order.

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

Pivotal Week For Price Action
Market TalkThursday, Sep 28 2023

Gasoline And Crude Oil Futures Are All Trading Between .5% And .8% Lower To Start The Day

The energy complex is sagging this morning with the exception of the distillate benchmark as the prompt month trading higher by about a penny. Gasoline and crude oil futures are all trading between .5% and .8% lower to start the day, pulling back after WTI traded above $95 briefly in the overnight session.

There isn’t much in the way of news this morning with most still citing the expectation for tight global supply, inflation and interest rates, and production cuts by OPEC+.

As reported by the Department of Energy yesterday, refinery runs dropped in all PADDs, except for PADD 3, as we plug along into the fall turnaround season. Crude oil inventories drew down last week, despite lower runs and exports, and increased imports, likely due to the crude oil “adjustment” the EIA uses to reconcile any missing barrels from their calculated estimates.

Diesel remains tight in the US, particularly in PADD 5 (West Coast + Nevada, Arizona) but stockpiles are climbing back towards their 5-year seasonal range. It unsurprising to see a spike in ULSD imports to the region since both Los Angeles and San Francisco spot markets are trading at 50+ cent premiums to the NYMEX. We’ve yet to see such relief on the gasoline side of the barrel, and we likely won’t until the market switches to a higher RVP.

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