Weak Data From China Is Getting Blamed For The Soft Start In Both Energy And Equity Markets This Morning

Market TalkTuesday, Aug 15 2023
Pivotal Week For Price Action

Diesel prices are moving lower for a 4th straight day and are down 19 cents from Thursday’s high trade after chart support failed to hold on Monday. Gasoline and crude oil prices were following diesel’s lead lower this morning, with RBOB futures down nearly a dime since Friday before bouncing back to break-even levels around 7:30 central.

Weak data from China is getting blamed for the soft start in both energy and equity markets this morning. While sales, production and investment all moved higher on the year, the numbers were well below what many forecasters were expecting, and more troubling was their Bureau of Statistics stopped reporting unemployment figures for youth, which had recently soared to record highs. The weaker economic activity isn’t slowing down Chinese refineries however as the new capacity brought online in the past 2 years helped hold output near record levels in July and continue heavy export activity despite seasonally strong domestic demand.

The bounce in gasoline prices off of overnight lows followed US retail sales data for July that showed the strongest gain since January, even though that report seems to have done little to move equities off of their lows for the day. The correlation between daily moves in energy and equity markets had largely fallen apart over the past couple of weeks, which seems to be helping RBOB shrug off the drop in stocks so far.

The volatility index for WTI has dropped to its lowest level since 2019 as global markets seem to be finding some sense of temporary equilibrium after the chaos of the COVID years and shock of the Russian invasion changing the direction of the global energy trade. 

What a difference a week makes: Group 3 Unleaded basis values have dropped nearly 30 cents over the past week as concerns about a supply squeeze ahead of the fall RVP transition seem to be subsiding. Neighboring Chicago RBOB prices followed the Group’s strong rally over the past month, and now look like they could be set to collapse in sympathy as well.  West Coast basis levels remain elevated heading into the transition, with last year’s September spike north of $2/gallon premiums still fresh on many minds.

Add another competitor to the renewable feedstock wars: A recent test showed Hydrotreated Vegetable Oil (which is what the rest of the world calls Renewable Diesel) lowered emissions 83% when replacing traditional bunker fuels on ships. That should come as no surprise to anyone who has been watching the rapid growth in RD production the past few years, and the question for producers is simply which market will provide the most incentive (aka environmental credits) for their RD, SAF or marine HVO.

The NHC is still tracking 2 potential storm systems this morning. The good news is the first system that could form in the Caribbean, is only given 10% odds of developing, and the 2nd storm that has slightly higher odds (30%) looks like it’s moving far enough north that it should stay over open water if it does develop further.

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Market Talk Update 08.15.2023

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Pivotal Week For Price Action
Market TalkFriday, Apr 19 2024

Gasoline Futures Are Leading The Way Lower This Morning

It was a volatile night for markets around the world as Israel reportedly launched a direct strike against Iran. Many global markets, from equities to currencies to commodities saw big swings as traders initially braced for the worst, then reversed course rapidly once Iran indicated that it was not planning to retaliate. Refined products spiked following the initial reports, with ULSD futures up 11 cents and RBOB up 7 at their highest, only to reverse to losses this morning. Equities saw similar moves in reverse overnight as a flight to safety trade soon gave way to a sigh of relief recovery.

Gasoline futures are leading the way lower this morning, adding to the argument that we may have seen the spring peak in prices a week ago, unless some actual disruption pops up in the coming weeks. The longer term up-trend is still intact and sets a near-term target to the downside roughly 9 cents below current values. ULSD meanwhile is just a nickel away from setting new lows for the year, which would open up a technical trap door for prices to slide another 30 cents as we move towards summer.

A Reuters report this morning suggests that the EPA is ready to announce another temporary waiver of smog-prevention rules that will allow E15 sales this summer as political winds continue to prove stronger than any legitimate environmental agenda. RIN prices had stabilized around 45 cents/RIN for D4 and D6 credits this week and are already trading a penny lower following this report.

Delek’s Big Spring refinery reported maintenance on an FCC unit that would require 3 days of work. That facility, along with several others across TX, have had numerous issues ever since the deep freeze events in 2021 and 2024 did widespread damage. Meanwhile, overnight storms across the Midwest caused at least one terminal to be knocked offline in the St. Louis area, but so far no refinery upsets have been reported.

Meanwhile, in Russia: Refiners are apparently installing anti-drone nets to protect their facilities since apparently their sling shots stopped working.

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

Pivotal Week For Price Action
Market TalkThursday, Apr 18 2024

The Sell-Off Continues In Energy Markets, RBOB Gasoline Futures Are Now Down Nearly 13 Cents In The Past Two Days

The sell-off continues in energy markets. RBOB gasoline futures are now down nearly 13 cents in the past two days, and have fallen 16 cents from a week ago, leading to questions about whether or not we’ve seen the seasonal peak in gasoline prices. ULSD futures are also coming under heavy selling pressure, dropping 15 cents so far this week and are trading at their lowest level since January 3rd.

The drop on the weekly chart certainly takes away the upside momentum for gasoline that still favored a run at the $3 mark just a few days ago, but the longer term up-trend that helped propel a 90-cent increase since mid-December is still intact as long as prices stay above the $2.60 mark for the next week. If diesel prices break below $2.50 there’s a strong possibility that we see another 30 cent price drop in the next couple of weeks.

An unwind of long positions after Iran’s attack on Israel was swatted out of the sky without further escalation (so far anyway) and reports that Russia is resuming refinery runs, both seeming to be contributing factors to the sharp pullback in prices.

Along with the uncertainty about where the next attacks may or may not occur, and if they will have any meaningful impact on supply, come no shortage of rumors about potential SPR releases or how OPEC might respond to the crisis. The only thing that’s certain at this point, is that there’s much more spare capacity for both oil production and refining now than there was 2 years ago, which seems to be helping keep a lid on prices despite so much tension.

In addition, for those that remember the chaos in oil markets 50 years ago sparked by similar events in and around Israel, read this note from the NY Times on why things are different this time around.

The DOE’s weekly status report was largely ignored in the midst of the big sell-off Wednesday, with few noteworthy items in the report.

Diesel demand did see a strong recovery from last week’s throwaway figure that proves the vulnerability of the weekly estimates, particularly the week after a holiday, but that did nothing to slow the sell-off in ULSD futures.

Perhaps the biggest next of the week was that the agency made its seasonal changes to nameplate refining capacity as facilities emerged from their spring maintenance.

PADD 2 saw an increase of 36mb/day, and PADD 3 increased by 72mb/day, both of which set new records for regional capacity. PADD 5 meanwhile continued its slow-motion decline, losing another 30mb/day of capacity as California’s war of attrition against the industry continues. It’s worth noting that given the glacial pace of EIA reporting on the topic, we’re unlikely to see the impact of Rodeo’s conversion in the official numbers until next year.

Speaking of which, if you believe the PADD 5 diesel chart below that suggests the region is running out of the fuel, when in fact there’s an excess in most local markets, you haven’t been paying attention. Gasoline inventories on the West Coast however do appear consistent with reality as less refining output and a lack of resupply options both continue to create headaches for suppliers.

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

Pivotal Week For Price Action