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
Pivotal Week For Price Action
Market TalkWednesday, Jul 17 2024

Energy Markets Are Trying To Find A Price Floor After Gasoline And Crude Oil Staged A Healthy Bounce To Minimize The Heavy Losses

Energy markets are trying to find a price floor after gasoline and crude oil staged a healthy bounce to minimize the heavy losses we saw early in Tuesday’s session. WTI is leading the move higher early Wednesday, up nearly $.90/barrel in the early going, while RBOB prices are up just under a penny.

Diesel continues to look like the weak link in the energy chain both technically and fundamentally. Tuesday the API reported a 4.9 million barrel build in diesel stocks, while gasoline inventories were only up 365,000 barrels, and crude oil stocks declined by more than 4.4 million barrels. The DOE’s weekly report is due out at its normal time this morning and it’s likely we’ll see a reduction in oil output and PADD 3 refining runs thanks to shut ins ahead of Hurricane Beryl, but otherwise the storm appears to be a relative non-issue with only 1 notable refining hiccup, that wasn’t even as bad as a midwestern Thunderstorm.

Chicago basis values rallied Tuesday after reports that Exxon had shut down the 250mb/day Joliet refinery following severe storms that knocked out power to the area Sunday. RBOB differentials surged nearly 9 cents on the day, while diesel diffs jumped more than a nickel. With 3 large refineries in close proximity, the Chicago cash market is notoriously volatile if any of those facilities has an upset. Back in May there was a one-day spike in gasoline basis of more than 50 cents/gallon after Joliet had an operating upset so don’t be surprised if there are bigger swings this week if the facility doesn’t come back online quickly.

Moving in the opposite direction, California basis values are heading the opposite direction with the transition to August scheduling pressuring CARBOB differentials in LA and San Francisco to their biggest discounts to prompt RBOB futures in more than 18 months. Gasoline imports into PADD 5 have held well above average levels over the past 2 months, which has more than offset the loss of the P66 Rodeo refinery’s output after it completed its conversion to RD production, in another sign of how growing refining capacity in China and other Asian countries may become more influential to the US. California regulators may also pat themselves on the back that their new plans to force refineries to report their gross profit monthly, in addition to the rules requiring all bulk trades in the state be reported must be driving the lower gasoline differentials, assuming they figure out what a basis differential is.

Meanwhile, California’s Carbon Allowance values have tumbled to their lowest levels in a year after a CARB presentation last week suggested the agency would be delaying long-anticipated tightening of the Cap and Trade program until 2026.

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

Pivotal Week For Price Action
Market TalkTuesday, Jul 16 2024

The Sell-Off In Energy Markets Continues, With Refined Products Reaching Their Lowest Levels In A Month Early In Tuesday’s Session

The sell-off in energy markets continues, with refined products reaching their lowest levels in a month early in Tuesday’s session. Reports of slowing growth in China, the world’s largest oil purchaser, is getting much of the credit for the slide in prices so far this week, although that doesn’t do much to explain why refined products are outpacing the drop in crude.

ULSD futures are leading the early move lower, trading down a nickel on the day, and marking a 19 cent drop since July 4th. There’s not much in the way of technical support for ULSD, so don’t be surprised if this sell-off continues to pick up steam.

With today’s slide, RBOB futures are down 17 cents from where they were trading on July 4th, and are just a couple of cents from testing their 200-day moving average. Should that support break, it looks like there’s a good chance to test the June lows around $2.29.

Physical markets are not offering any strength to the futures market with all 6 of the major cash markets for diesel across the US trading at a discount to ULSD futures, while only 1 gasoline market is trading at a premium to RBOB futures. That combination of weakness in futures and cash markets is going to be troubling for refiners who are seeing margins reduce during what is traditionally a strong time of year.

The EIA highlighted the energy trade between the US and Mexico in a report Monday, showing that despite so many claims of energy independence from Mexican officials, the actual amount of refined fuels and natural gas bought from the US continues to increase. That’s good news for many US refiners who have become more dependent on Mexican purchases to find a home for their output.

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