Whiplash Is The Theme This Week

Market TalkWednesday, Aug 11 2021
Pivotal Week For Price Action

Whiplash is the theme this week, as refined products have their 3rd straight nickel swing in the early going, wiping out most of Tuesday’s gains…which wiped out most of Monday’s losses. The pullback keeps the August trend-lines pointing down, with lower highs set in each subsequent bounce suggesting more selling to come unless the bulls manage to break back above the July highs.

A major difference in today’s selling is that rising COVID cases aren’t taking the blame for the selling, instead a report that the White House is pressuring OPEC & Friends to produce more oil and help tame prices is getting credit for the selloff.  

At face value that doesn’t seem to help explain why gasoline is leading the slide, but the report also suggests the white house is going to push the federal trade commission to take a look at rising gasoline prices. That investigation doesn’t need much effort to see the inconvenient truth that the RFS, LCFS and Cap & Trade programs each add more than 20 cents/gallon to fuel prices, and by design will get costlier each year. Then again, blaming climate change programs for rising prices won’t win many points in Washington, and it will be easier to blame refiners, which could complicate some of the acquisitions currently in process.

After several big moves in the past 2 weeks, West Coast basis values cooled off Tuesday, but could see more buying pressure today if the latest in a string of refinery hiccups disrupts one of the last refineries standing in the SF Bay area. 

You think prices are volatile now? Read this WSJ article on the tough decisions retail stations have to make in regards to EV charging stations, one of which is having to guess at what their electricity costs will be. Those retail stations did score a major victory this week when the new infrastructure bill prevented interstate rest-stops from installing EV chargers, which would have put utilities in a position to directly compete with those stations, using federal property in many cases.

The EIA’s Short Term Energy Outlook seemed to offer a bullish boost to prices Tuesday, as the agency’s contracted thinkers at IHS increased their gasoline demand estimates, and lowered their OPEC oil output forecasts. The report highlighted how both calendar and crack spreads for gasoline have reached multi-year highs as inventories have rapidly drawn down in recent months. Once again, the report fails to mention the influence of RIN values on those gasoline prices, which knock about $8.5/barrel (~20 cents/gallon) off of those crack spreads.

The API’s weekly report looks like it was largely shrugged off, with only minimal changes in inventory reported. Crude stocks were said to be down 816k barrels, gasoline was down 1.1 million and distillates built 673k. The EIA’s version of the stats are scheduled to be out at their normal time this morning.

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Market Update (01A) 8.11

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Pivotal Week For Price Action
Market TalkWednesday, May 29 2024

The Texas Power Grid Is Once Again In The Forefront After Another Round Of Storms Left Hundreds Of Thousands Without Power Tuesday

It’s a quiet start to Wednesday’s trading, with refined products up less than a penny in the early going, following a healthy bounce Tuesday that alleviated concerns of a technical price breakdown near term.

A container ship transiting the Red Sea was heavily damaged by a Houthi Missile attack Tuesday. While energy markets continue to shrug off the shipping disruptions caused by those attacks, container ports around the world are feeling its effects and emissions from shipping are increasing along with the longer routes taken to avoid the conflict.

Consolidation continues: Less than a day after Hess shareholders approved its sale to Chevron, Conoco Phillips is reportedly in advanced negotiations to buy Marathon Oil for $22 billion. To avoid confusion, this does not have anything to do with the refining operations at Phillips 66 or Marathon Petroleum, both of which were spun off from their upstream exploration and production companies more than a decade ago. Meanwhile, acquisition activity in the Permian basin remains hotter than drilling activity as Energy Transfer agreed to buy WTG for more than $3 billion.

The Texas power grid is once again in the forefront after another round of storms left hundreds of thousands without power Tuesday. A Reuters article this morning highlights the record setting growth of renewable energy in Texas along with the record use of fossil-based sources to meet the state’s rapid demand increases. This phenomenon isn’t unique to the Lonestar state, with many in the industry believing that electricity demand from AI, Crypto and EV’s will drive the next energy supply squeeze in coming years.

Slowdown coming? The Dallas Fed’s Texas Manufacturing survey showed negative readings on output, new orders and the business conditions outlook in May.

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

Pivotal Week For Price Action
Market TalkTuesday, May 28 2024

ULSD Is Leading The Move Higher This Morning With Prices Up Nearly A Nickel In The Early Going

Energy futures are attempting another recovery rally, with products up more than 7 cents from Friday’s early lows, while crude oil contracts have taken back $3/barrel over that time. ULSD is leading the move higher this morning with prices up nearly a nickel in the early going, while RBOB futures are up around 2.5 cents.

Money managers were adding net length in WTI, ULSD and Gasoil contracts last week with both new long positions and heavy short covering. Brent crude was a different story however with speculative net length in the European crude contract slashed by nearly 1/3 with nearly 33,000 new short positions added during the prior week. The big reduction in WTI shorts while Brent shorts are being added suggests the big play by hedge funds may be the WTI/Brent spread rather than bets on outright price movements.

Baker Hughes reported no change in the total oil rig count drilling in the US last week, holding steady at 497 vs 570 a year ago. Natural Gas rigs dropped by 4 on the week, reaching a 2 year low at 99 rigs, down from 137 this time last year. Natural gas prices have staged a big recovery from around $1.50/MMCF a month ago to $2.50 today, but current values are still not high enough to encourage drillers to get more active, particularly with more gas being produced from oil wells.

Deadly storms hit large parts of the country over the Holiday weekend, and continue this morning, but so far no reports of refinery damage from those systems has been reported. Marathon did report an upset in a Residual Hydrotreating unit at its Galveston Bay refinery Friday, but that event doesn’t appear to have slowed down the rest of the facility.

More bad news for US Bio producers: The EIA this morning highlighted the growth in biodiesel imports into the US from Europe – primarily Germany – as changing appetites for renewables and disjointed policies incent more barrels to travel long distances on diesel burning ships to find the highest tax credit value.

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

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Market TalkFriday, May 24 2024

Selling Continues In Energy Markets After Thursday's Reversal Rally Ran Out Of Steam In The Afternoon

The selling continues in energy markets after Thursday’s reversal rally ran out of steam in the afternoon, following the lead of U.S. equity markets which had a big sell-off on the day. Prices haven’t yet fallen below the multi-month lows we saw early last week, but we’re just a couple of cents away from those levels, and the potential technical trapdoor that could lead to sharply lower values over the next couple of weeks.

We did see a brief spike in gasoline futures after the settlement Thursday following reports that Colonial had shut down Line 4 due to an IT issue, but those gains were short-lived as the pipeline was restarted without issue a few hours later. Those who remember the chaos of May 2021 after Colonial was hacked are breathing a sigh of relief, particularly on one of the busiest demand days of the year, while others are no doubt disappointed we won’t get to see the rash of fake photos of people filling up plastic bags with gasoline.

OPEC & Friends (AKA the DoC) announced they’re moving June’s policy meeting to a virtual-only affair, which the market is taking as a signal of the status quo being held on output cuts.

Chicago being Chicago: Tuesday’s 60-cent basis spike was officially wiped out by Thursday afternoon, suggesting the short-lived rally was just short covering in an illiquid market rather than a meaningful supply disruption.

RIN values continued their rally this week, touching a 4-month high at 59 cents/RIN for both D4 and D6 values Thursday. If you believe in technical analysis on something like RINs, you can see a “W” pattern formed on the charts, suggesting a run to the 80-cent range is coming if prices can get above 60. If you are more of a fundamentalist, then you’ll probably think this rally is probably more short-term short-covering by producers of RD who have changed their schedule buying back their RIN hedges for volume they’re no longer planning to produce.

NOAA issued its most aggressive Hurricane forecast ever Thursday, joining numerous other groups that think a La Nina pattern and record warm waters will create more and bigger storms this year. With the activity level seeming to be a foregone conclusion at this point, now it’s all about where those storms hit to know if this busy season will be a huge factor in energy supplies like we saw in 2005, 2008, 2012 and 2017. With the Houston area already being bombarded by floods and deadly wind this year, the refinery row across the U.S. Gulf Coast seems even more vulnerable than normal to the effects of a storm.

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