Worst Week For U.S. Equity And Energy Prices

Market TalkMonday, Mar 2 2020
Energy Futures Face Meaningful Sell-Off

We just lived through the worst week since 2008 for U.S. equity and energy prices as the world struggles to deal with the uncertainty of the coronavirus. Central bank intervention seems to be the theme of the day, helping some contracts find a price floor (at least temporarily) as the FED and other banks pledge to step in to support the economy.

While current values look tame with refined products up less than half a cent on the day, the overnight action saw early three to four cent losses swing to three to four cent gains, following closely with similar moves in U.S. equity futures, suggesting that the recent increase in volatility isn’t going away just yet.

Don’t adjust your dial: April RBOB took the prompt trading position today, adding some 11 cents in value from the March contract due to the transition to summer specs. You won’t see that move at the racks today as cash markets adjust for this with negative basis values until the physical terminal conversions happen over the next six weeks.

One data point that shows how fast the market outlook has changed: one week ago the CME’s FedWatch tool showed a zero percent probability of a 50 point reduction in the FED’s target rate in March, and this morning there’s a 100 percent probability given for that rate cut.

Money managers did not appear to be heading for the exits in the first few days of the latest sell-off, with WTI and Brent both seeing small increases in net-length (bets on higher prices) while refined products both saw modest selling. Of course, the data for the COT reports is compiled as of Tuesday, so we don’t know what happened when the selling picked up the pace Wednesday through Friday.

Want a reason for a price rally? The last time money managers (aka large speculators, aka hedge funds) were this negative on diesel positions was June 2017, which was also when ULSD prices bottomed at $1.40 before rallying north of $2.09 in the back half of the year.

Baker Hughes reported a decline of one oil rig in the U.S. last week, with the total count more or less going nowhere so far this year. If oil prices hold below $50 however, there are plenty of analysts suggesting we could see the rig count drop more substantially over the next few months, which would eventually end the string of record-setting U.S. oil production that’s going on three years and counting.

Today’s interesting read: How the virus lent a helping hand in the climate change battle.

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

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Pivotal Week For Price Action
Market TalkThursday, Mar 30 2023

Refined Products Are Moving Lower For A 2nd Day After Coming Under Heavy Selling Pressure In Wednesday’s Session

Refined products are moving lower for a 2nd day after coming under heavy selling pressure in Wednesday’s session. Rapidly increasing refinery runs and sluggish diesel demand both seemed to weigh heavily on product prices, while crude oil is still benefitting from the disruption of exports from Iraq. Prices remain range-bound, so expect more choppy back and forth action in the weeks ahead.

US oil inventories saw a large decline last week, despite another 13-million barrels of oil being found in the weekly adjustment figure, as imports dropped to a 2-year low, and refinery runs cranked up in most regions as many facilities return from spring maintenance.

The refining utilization percentage jumped to its highest level of the year but remains overstated since the new 250,000 barrels/day of output from Exxon’s Beaumont facility still isn’t being counted in the official capacity figures. If you’re shocked that the government report could have such a glaring omission, then you haven’t been paying attention to the Crude Adjustment figure this year, and the artificially inflated petroleum demand estimates that have come with it.

Speaking of which, we’re now just a couple of months away from WTI Midland crude oil being included in the Dated Brent index, and given the uncertainty in the US over what should be classified as oil vs condensate, expect some confusion once those barrels start being included in the international benchmark as well.  

Diesel demand continues to hover near the lowest levels we’ve seen for the first quarter in the past 20+ years, dropping sharply again last week after 2 straight weeks of increases had some markets hoping that the worst was behind us. Now that we’re moving out of the heating season, we’ll soon get more clarity on how on road and industrial demand is holding up on its own in the weekly figures that have been heavily influenced by the winter that wasn’t across large parts of the country.

Speaking of which, the EIA offered another mea culpa of sorts Wednesday by comparing its October Winter Fuels outlook to the current reality, which shows a huge reduction in heating demand vs expectations just 6-months ago.  

It’s not just domestic consumption of diesel that’s under pressure, exports have fallen below their 5-year average as buyers in South America are buying more Russian barrels, and European nations are getting more from new facilities in the Middle East.

Take a look at the spike in PADD 5 gasoline imports last week to get a feel for how the region may soon be forced to adjust to rapidly increasing refining capacity in Asia, while domestic facilities come under pressure

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
Market TalkWednesday, Mar 29 2023

Crude Oil Prices Are Trying To Lead Another Rally In Energy Futures This Morning

Crude oil prices are trying to lead another rally in energy futures this morning, while ULSD prices are resisting the pull higher. Stocks are pointed higher in the early going as no news is seen as good news in the banking crisis.

WTI prices have rallied by $10/barrel in the past 7 trading days, even with a $5 pullback last Thursday and Friday. The recovery puts WTI back in the top half of its March trading range but there’s still another $7 to go before the highs of the month are threatened. 

Yesterday’s API report seems to be aiding the continued strength in crude, with a 6 million barrel inventory decline estimated by the industry group last week. That report also showed a decline of 5.9 million barrels of gasoline which is consistent with the spring pattern of drawdowns as we move through the RVP transition, while distillates saw a build of 550k barrels. The DOE’s weekly report is due out at its normal time this morning. 

Diesel prices seems to be reacting both to the small build in inventories – which is yet another data point of the weak demand so far this year for distillates – and on the back of crumbling natural gas prices that settled at their lowest levels in 2.5 years yesterday and fell below $2/million BTU this morning. 

While diesel futures are soft, rack markets across the Southwestern US remain unusually tight, with spreads vs spot markets approaching $1/gallon in several cases as local refiners go through maintenance and pipeline capacity for resupply remains limited. The tightest supply in the region however remains the Phoenix CBG boutique gasoline grade which is going for $1.20/gallon over spots as several of the few refineries that can make that product are having to perform maintenance at the same time. 

French refinery strikes continue for a 4th week and are estimated to be keeping close to 1 million barrels/day of fuel production offline, which is roughly 90% of French capacity and almost 1% of total global capacity. That disruption is having numerous ripple effects on crude oil markets in the Atlantic basin, while the impact on refined product supplies and prices remains much more contained than it was when this happened just 5 months ago.

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

Pivotal Week For Price Action