WTI Settled Higher For An 8th Consecutive Session Before Pulling Back Slightly This Morning

Market TalkThursday, Sep 7 2023
Pivotal Week For Price Action

Energy markets survived a heavy wave of selling Wednesday morning with RBOB and WTI futures turning early losses into afternoon gains, while ULSD futures bounced more than 6 cents/gallon off of their morning lows.

WTI settled higher for an 8th consecutive session before pulling back slightly this morning.  That relative strength in crude oil and pullback in products has put downward pressure on refining margins, although the forward curve charts below suggest a rosy outlook in the years ahead for those that weathered the COVID and ESG storms over the past few years as the global refinery network remains limited in its capacity.  

The API reported draws in gasoline and crude oil inventories of more than 5-million barrels each last week, while distillates saw a small increase of around 300,000 barrels. The EIA’s weekly report is due out at 10am central this AM. There will be some noise in oil production due to precautionary shutdowns due to Idalia’s movement through the Gulf of Mexico last week, but otherwise that storm seems to have had little impact on energy supplies.  

Hurricane Lee is rapidly intensifying and is expected to reach category 4 status tomorrow.   Most models continue to show Lee staying offshore as it moves north along the East Coast, but a few projections show that a landfall is still possible anywhere from the outer banks of North Carolina to New England.  Even if the storm doesn’t hit land, it is still likely to roil shipping traffic, particularly in and around New York harbor, just as the industry is racing to complete the fall RVP transition.  

A Reuters report Wednesday suggests the White House will delay a ruling on how to handle SAF made from ethanol until December, as the administration wrestles with the troubling fact that the intended carbon reduction of fuel made by clearing more land to plant corn simply doesn’t exist. RIN prices continue to move lower this week, touching fresh 18-month lows Wednesday as the rapid influx of Renewable Diesel production adds more physical and RIN supply to the market.  

Exxon’s Beaumont refinery reported a process upset Wednesday at an FCC unit.  The issue lasted approximately 8 hours but impacts on production remain unclear. Delek’s Big Spring refinery reported another issue, this one due to storms, after disruptions at that plant were part of the reason the EPA granted an RVP waiver to El Paso to try and avoid widespread gasoline shortages of their boutique 7lb RVP blend.

Mexico’s new Dos Bocas refinery has reportedly begun producing some refined products, nearly a year after its grand opening. The Mexican president insists that the facility will produce nearly 300,000 barrels/day of fuels by year end, even though several earlier claim of similar output levels proved false. In an unrelated story, 11,000 runners were disqualified from the Mexico City marathon for cheating. 

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Market Talk Update 09.07.2023

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Pivotal Week For Price Action
Market TalkFriday, Apr 12 2024

Charts Continue To Favor A Push Towards The $3 Mark For Gasoline, While Diesel Prices May Need To Be Dragged Along For The Ride

Energy prices are rallying once again with the expected Iranian attack on Israel over the weekend appearing to be the catalyst for the move. RBOB gasoline futures are leading the way once again, trading up more than a nickel on the day to reach a fresh 7 month high at $2.8280. Charts continue to favor a push towards the $3 mark for gasoline, while diesel prices may need to be dragged along for the ride.

So far it appears that Motiva Pt. Arthur is the only refinery that experienced a noteworthy upset from the storms that swept across the southern half of the country this week. Those storms also delayed the first round of the Masters, which matters more to most traders this week than the refinery upset.

Chevron’s El Segundo refinery in the LA-area reported an unplanned flaring event Thursday, but the big moves once again came from the San Francisco spot market that saw diesel prices rally sharply to 25 cent premiums to futures. The Bay Area now commands the highest prices for spot gasoline and diesel as the conversion of 1 out of the 4 remaining refineries to renewable output is not-surprisingly creating disruptions in the supply chain.

RIN values dropped back below the 50-cent mark, after the recovery rally ran out of steam last week. The EPA is facing numerous legal challenges on the RFS and other policies, and now half of the US states are challenging the agency’s new rule restricting soot emissions. That lack of clarity on what the law actually is or may be is having widespread impacts on environmental credits around the world and makes enforcement of such policies a bit of a joke. Speaking of which, the EPA did just fine a South Carolina company $2.8 million and require that it buy and retire 9 million RINs for improper reporting from 2013-2019. The cost of those RINs now is about 1/3 of what it was this time last year, so slow playing the process definitely appears to have paid off in this case.

The IEA continues to do its best to downplay global demand for petroleum, once again reducing its economic outlook in its Monthly Report even though the EIA and OPEC continue to show growth, and the IEA’s own data shows “Robust” activity in the first quarter of the year. The IEA has come under fire from US lawmakers for changing its priorities from promoting energy security, to becoming a cheerleader for energy transition at the expense of reality.

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

Pivotal Week For Price Action
Market TalkThursday, Apr 11 2024

Diesel Prices Continue To Be The Weak Link In The Energy Chain

Energy prices are ticking modestly lower this morning, despite warnings from the US that an Iranian attack on Israeli interest is “imminent” and reports of weather induced refinery outages, as demand fears seem to be outweighing supply fears temporarily. Diesel prices continue to be the weak link in the energy chain with both the DOE and OPEC reports giving the diesel bears reason to believe lower prices are coming.

The March PPI report showed a lower inflation reading for producers than the Consumer Price Index report, leading to an immediate bounce in equity futures after the big wave of selling we saw yesterday. To put the CPI impact in perspective, a week ago Fed Fund futures were pricing in an 80% chance of an interest rate cut by the FED’s July 31 meeting, and today those odds have shrunk to 40% according to the CME’s FedWatch tool.

OPEC’s monthly oil market report held a steady outlook for economic growth and oil demand from last month’s report, noting the healthy momentum of economic activity in the US. The cartel’s outlook also highlighted significant product stock increases last month that weighed heavily on refining margins, particularly for diesel. Given the US focus on ULSD futures that are deliverable on the East Coast, which continues to have relatively tight supply for diesel, it’s easy to overlook how quickly Asian markets have gotten long on distillates unless of course you’re struggling through the slog of excess supply in numerous west coast markets these days. The OPEC report noted this in a few different ways, including a 33% decline in Chinese product exports as the region simply no longer needs its excess. The cartel’s oil output held steady during March with only small changes among the countries as they hold to their output cut agreements.

If you believe the DOE’s diesel demand estimates, there’s reason to be concerned about domestic consumption after a 2nd straight week of big declines. The current estimate below 3 million barrels/day is something we typically only see the week after Christmas when many businesses shut their doors. We know the DOE’s figures are missing about 5% of total demand due to Renewable Diesel not being included in the weekly stats, and it’s common to see a drop the week after a holiday, but to lose more than a million barrels/day of consumption in just 2 weeks will keep some refiners on edge.

Most PADDs continue to follow their seasonal trends on gasoline with 1 and 2 still in their normal draw down period, while PADD 3 is rebuilding inventories faster than normal following the transition to summer grade products. That rapid influx of inventory in PADD 3 despite robust export activity helps explain the spike in premiums to ship barrels north on Colonial over the past 2 weeks. Gasoline also saw a sizeable drop in its weekly demand estimate, but given the holiday hangover effect, and the fact that it’s in line with the past 2 years, there’s not as much to be concerned about with that figure. While most of the activity happens in PADDs 1-3, the biggest disconnect is coming in PADDs 4 and 5, with gasoline prices in some Colorado markets being sold 50 cents or more below futures, while prices in some California markets are approaching 90 cents above futures.

Severe weather sweeping across the southern US knocked several units offline at Motiva’s Pt Arthur plant (the country’s largest refinery) Wednesday, and it seems likely that Louisiana refineries will see some disruption from the storm that spawned tornadoes close to the Mississippi River refining hub. So far cash markets haven’t reacted much, but they’ll probably need more time to see what damage may have occurred.

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