Whiplash Is The Theme Of The Week As Stock Markets Had Their Biggest Daily Swings In Years
Whiplash is the theme of the week as stock markets had their biggest daily swings in years while energy futures are getting swept up in the confusion. After a busy Monday, we’ve already seen a nickel swing in ULSD prices today, with RBOB and crude oil contracts seeing similar back and forth action in the early going.
Looking at only the charts, and not the headlines, refined products have so far been able to find technical support around the trend-lines that have fueled their bull run over the past 6 weeks. If we see ULSD continue to hold a floor just north of $2.60 and RBOB around $2.40, there’s a good chance we end up seeing another run at 2014 prices levels, but if those levels break (and hold) there’s a good chance we’ll see a 10-15 cent drop coming soon.
The DJIA had its biggest daily swing since the onset of the pandemic, rallying from an 1,100 point loss mid-day to end the session up nearly 100 points, but is pointing to another weak start down nearly 400 points this morning. The Nasdaq 100 had an even bigger bounce, rallying more than 5% off of its lows for the day, the biggest daily reversal since the financial crisis in 2008, but it too is looking weaker again to start today’s trading.
Perhaps the biggest headwind for stocks is that the FED has been signaling that it will not be coming to the rescue to prop up financial markets, and in fact will be tightening its monetary policy and raising rates, taking the free put option out of the market. How this impacts energy prices can depend on the day, as often times the correlation between the two asset classes can be strong and they move in lock step, but currently are only moving together for short periods of time.
The VIX chart below shows that stocks are more “nervous” now than they’ve been since we first learned about Omicron, and while energy volatility is elevated, it’s nowhere close to what we saw 2 months ago.
The escalating tensions around Ukraine have become a double-edged sword for energy prices as they weigh heavily on financial markets, adding to the unpredictable nature of trading this week after helping fuel the rally for the past 2 months.
A new report from McKinsey & Company suggests that the transition to net zero will require an extra $3.5 trillion in spending per year through 2050, for a total of $275 trillion. Too bad the FED has closed down its printing press for the time being or that would seem like pocket change. The report also noted that while the transition to new fuels may cost 185 million existing jobs, it will create roughly 200 million new positions.
Click here to download a PDF of today's TACenergy Market Talk.
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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.
Week 15 - US DOE Inventory Recap
Prices To Lease Space On Colonial’s Main Gasoline Line Continue To Rally This Week
Energy markets are sliding lower again to start Wednesday’s trading as demand concerns and weaker stock markets around the world seem to be outweighing any supply concerns for the time being.
Rumors continue to swirl about an “imminent” response by Israel to Iran’s attacks, but so far, no news seems to be taken as good news in the hopes that further escalation can be avoided, even as tensions near the Red Sea and Strait of Hormuz continue to simmer.
Prices to lease space on Colonial’s main gasoline line continue to rally this week, trading north of 11 cents/gallon as Gulf Coast producers still struggle to find outlets for their production, despite a healthy export market. Gulf Coast CBOB is trading at discounts of around 34 cents to futures, while Gulf Coast RBOB is trading around a 16-cent discount, which gives shippers room to pay up for the linespace and still deliver into the East Coast markets at a profit.
Back to reality, or just the start of more volatility? California CARBOB basis values have dropped back to “only” 40 cent premiums to RBOB futures this week, as multiple flaring events at California refineries don’t appear to have impacted supply. The state has been an island for fuel supplies for many years as its boutique grades prevent imports from neighboring states, and now add the conversion of the P66 Rodeo refinery to renewable diesel production and the pending changes to try and cap refinery profits, and it’s easier to understand why these markets are increasingly vulnerable to supply shocks and price spikes on gasoline.
RIN prices continue to fall this week, touching 44 cents/RIN for D4 and D6 values Tuesday, their lowest level in 6 weeks and just about a nickel above a 4-year low. While the sharp drop in RIN and LCFS values has caused several biodiesel and Renewable Diesel producers to either shut down or limit production, the growth in RIN generation continues thanks to projects like the Rodeo refinery conversion, making the supply in RINs still outpace the demand set by the Renewable Fuel Standard by a wide margin.
The API reported draws in refined products, 2.5 million barrels for gasoline and 427,000 barrels for distillates, while crude oil stocks had an estimated build of more than 4 million barrels. The DOE’s weekly report is due out at its normal time this morning.
Click here to download a PDF of today's TACenergy Market Talk.