Witnessing A Technical Breakout In Energy Prices
We’re witnessing a technical breakout in energy prices as oil and diesel contracts have surged to 7 year highs after chart resistance at the 2018 highs failed to contain the rally. OPEC & Friends decision to stick with their existing plans for oil output sent prices soaring Monday morning, and that momentum has carried through the overnight session. With OPEC members not willing to formally commit to new production increases (don’t forget they are already planning to increase output by 400,000 barrels/day each month) it seems there will not be a short-term answer to the supply crunch for energy supplies being felt around the world these days, which gives the bulls a strong argument to keep pushing prices higher.
While gasoline prices haven’t yet joined diesel and crude at 7 year highs, the fact that we’re seeing winter-grade gasoline specs rival the highs from summer-grade prices earlier in the year, after the US driving season has been put in the rearview mirror is no less impressive.
A pair of pipeline leaks last weekend are creating plenty of trouble for their local communities, but so far appear to be having limited impact on prices.
The well-publicized oil spill caused by a pipeline leak near Los Angeles is creating plenty of ecological damage, even though the size of the spill (roughly 3,000 barrels) is fairly small in comparison to evens like the Deepwater Horizon spill that was estimated near 60,000mb PER DAY for several weeks) or the Exxon Valdez spill which was more than 260,000 barrels. While the damage to beaches and wildlife is tragic, and may take months to recover, the relative small size may explain the lack of market reaction so far. Adding insult to injury? Some reports suggest that a ship’s anchor may have caused the pipeline to rupture (although the cause is still being investigated) which gives an unfortunate new perspective to the ship backlog at the port of Long Beach.
Meanwhile, a not-so-well-publicized leak in Alabama shut down the pipeline formerly known as Plantation last week, causing some suppliers to restrict product allocations at terminals across the South East. The lack of publicity for this event suggests that Kinder Morgan’s strategy of changing the pipeline’s name to something generic like the Products (SE) Pipeline, is a stroke of brilliance, and/or that the industry has become numb to supply disruptions after going through so many over the past year. Gulf Coast basis values barely flinched following the news, and premiums for line space on the competing Colonial line remained in negative territory. Reports suggest the pipeline expects to resume operations tomorrow (10/6).
RINs had a 5th straight session of strong buying interest, with D6 values moving north of $1.30/RIN for the first time in nearly a month, and rallying 45 cents since bottoming out last week. The strength in RINs seems to be helping keep refined products outpace the rally in crude oil as crack spreads will adjust to offset the impact of the RVO for refiners. The industry continues to wait for official word on the long overdue blending obligations from the EPA, and with congress gridlocked on debt, infrastructure and tax bills, it’s hard to know if we’ll see the actual numbers anytime soon.
Meanwhile, BP became the latest refiner to announce plans to expand its Renewable Diesel production, with an investment at its Ferndale WA plant that would allow co-production of RD along with traditional refined products. That means that BP, Chevron and Exxon are all working towards avenues of co-producing renewables at existing refineries, while Marathon, P66 and Holly are going the route of converting existing refineries to produce RD. The outcome of these new investments may define the refinery landscape in the coming decade, as co-production could allow some refiners to stay afloat – and continue producing other products – vs a conversion that all but ends most other output.
Click here to download a PDF of today's TACenergy Market Talk.
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Refined Products Bounce Back And Forth Across The Break-Even Line To Start Friday’s Trading
Gasoline Futures Rally Despite Inventory Builds, Increased Throughput
Energy Prices Fluctuate: Chinese Imports Surge, Saudi Arabia Cuts Output and Buys Golf
Week 23 - US DOE Inventory Recap
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View AllRefined 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.