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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

Pivotal Week For Price Action
Market TalkThursday, May 23 2024

Gasoline Prices Have Finally Found A Bid, Trading Up 3 Cents On The Day

Gasoline prices have finally found a bid, trading up 3 cents on the day after coming within a penny and a quarter of the multi-month lows set last week overnight. ULSD prices are also up a couple of cents in the early going after wiping out the gains they made last week. Both contracts are once again threatening a technical breakdown that could push prices another 20-30 cents lower if the current bounce isn’t sustained.

The EIA’s estimate for gasoline demand surged to a 7-month high last week, capping off a 4th straight week of gains that puts total consumption near the top end of the seasonal range after a very sluggish start to the year. AAA estimates that travel this Memorial Day weekend will approach a 20 year high with nearly 44 million people hitting the roads.

The EIA also published a note this morning showing average US gasoline prices are up 1% from last year, accompanied by a chart showing that average prices are down 7 cents/gallon from this time last year. The spread between retail gasoline prices on the West Coast vs the rest of the country continues to grow and is shown to be over $1.20/gallon thanks to Oregon and Washington’s Californication of their energy policies in recent years.

The EIA still seems to be struggling to figure out its accounting methods for crude oil inventories, with the adjustment factor that’s been creating all sorts of confusion the past couple of years flipping from a negative 200,000 barrels/day last week, to a positive 1.4 million barrels/day this week. You could give the EIA compilation crew a break and say that this reflects just how large and complex the US crude oil supply network is, or you could ask how did they suddenly “find” 10-million barrels of oil that they didn’t see last week.

Refiners are cranking up run rates, exceeding the levels we’ve seen this time of year in either of the past 2 years. Those higher run rates are added to the glut of diesel products that’s hanging over the majority of the country, and pushing rack spreads to levels we haven’t seen since the COVID lockdown in several markets.

The export market for US crude and refined products remains very busy with nearly 10 million barrels shipped out of the country every day. Refinery throughput was 16.2 million barrels/day last week, and more than 6 million barrels/day was exported even though gasoline and diesel exports have stagnated this year. The anticipated tick higher in US diesel exports following the rash of Russian refinery attacks has not materialized, which is no doubt contributing to the negative sentiment for diesel prices over the past month. The busy and growing export market for crude and other products also creates an interesting dynamic as we prepare for a busy hurricane season to kick off in a week as any disruption to infrastructure along the Gulf Coast could limit product going out of the country almost as much as it disrupts products flowing inland.

Basis values for RBOB in Chicago dropped 30 cents Wednesday after Tuesday’s 60 cent spike. It’s still unclear what if any impacts the confirmed fire at Exxon’s Joliet refinery, or the rumored upsets at BP’s Whiting facility have had on actual supply in the region, but the quick pullback suggests this is a flash in the pan rather than the start of a prolonged supply shortage.

Exxon reported a leak at its Beaumont TX Chemical plant, but it appears that upset isn’t impacting the operations at its adjacent refinery.

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, May 22 2024

Week 20 - US DOE Inventory Recap

Pivotal Week For Price Action
Market TalkWednesday, May 22 2024

The Big Story For Gasoline Cash Markets This Week Is Chicago RBOB Basis Values That Spiked More Than 60 Cents/Gallon

Energy futures are pulling back for a 3rd straight day after reports showed another build in gasoline and crude oil stocks, and the White House pulled another political stunt to try and lower prices in an election year.

The big story for gasoline futures this week was that the department of Energy announced it was shutting down the North East gasoline reserve Tuesday, pitching the plan as a way to keep gasoline prices lower for consumers during the driving season. The reserve was put in place following Superstorm Sandy in 2012 that had some stations in the region out of fuel and/or power for nearly a month. The timing and nature of the release, when prices have already showed signs of peaking for the season, and the US staring down what’s forecast to be the busiest hurricane season of the past 20 years, is questionable at best.

It appears that the DOE’s information arm didn’t get the memo on the release, as the EIA published a note this morning highlighting the threat posed to energy infrastructure by upcoming hurricane season.

If you’re interested in bidding, click here to register before the May 28 deadline, and make sure your vehicle is big enough to fit the 4-million-gallon minimum bid size. For perspective, the 900,000 barrels being offered in Pt Reading NJ (which is attached to the NYH market), represents about 3.5% of total PADD 1B gasoline inventories. It’s unclear if the bidding will be restricted to US companies but don’t be surprised at all if a portion of these barrels head overseas, or simply displace imports.

The big story for gasoline cash markets this week is Chicago RBOB basis values that spiked more than 60 cents/gallon, marking the largest single day increase for any market in the country so far this year. Rumors were swirling that Exxon was forced to buy barrels after a fire at its Joliet refinery over the weekend, after not making any moves Monday, while others noted flaring at the BP whiting refinery as the driver of the runup. If both rumors are true, and 2 of the 3 Chicago-area refineries are dealing with operational upsets at the same time, the region will become dependent on supplies from neighboring markets to make ends meet. PADD 2 refinery runs were holding near record highs before these events, and a rash of storms has kept demand across the region sluggish however, so there is plenty of spare capacity on pipelines that move products north, so it seems unlikely that Tuesday’s spike may be a classic Chicago-being-Chicago knee jerk reaction. So far the DOE hasn’t revised their gasoline reserve sale announcement to claim it was in response to these refinery issues.

Chicago diesel basis did rally a nickel Tuesday, and differentials are up more than 12 cents from a week ago, but those moves pale in comparison to gasoline at the moment, and are still holding the biggest discount to futures of any market in the country.

The API reported a build in gasoline inventories of 2 million barrels, and an increase in crude stocks of just under 2.5 million, while distillate stocks were down slightly about 320,000 barrels. The DOE’s weekly report is due out at its normal time this morning, and then will be delayed next week due to Memorial Day.

Who says it’s political? California’s LCFS values rallied off of 5 year lows this week after state officials announced they were delaying its announcement on how it will change the program that’s been too successful for its own good from March until a few days following the November Presidential election.

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

Pivotal Week For Price Action
Market TalkTuesday, May 21 2024

RBOB Gasoline Futures Are Leading The Move Lower, Dropping 9 Cents Since The High Print Set Sunday Night

Energy markets are sliding for a 2nd day, giving back most of last week’s gains as supply concerns seem to be ebbing, while sluggish demand concerns remain. Equity markets are also pulling back slightly after reaching record highs last week, giving a sense that the risk-on-rally has run out of steam.

RBOB gasoline futures are leading the move lower, dropping 9 cents since the high print set Sunday night. Adding to the bearish sentiment on gasoline prices this week are reports that despite a recent rise in refinery attacks, Russia is removing restrictions on gasoline exports through the end of June. RBOB futures are now just over a nickel away from another test of the 200 day moving average, which helped propel last week’s bounce. A break below that level opens the door to another 20+ cents of downside in the next couple of weeks. It’s hard to imagine we’ll see that slide heading into a holiday weekend that kicks off the driving season, but a slump following Memorial day is not uncommon.

In the latest sign that refiners see the future in “other” liquids besides gasoline and diesel, Phillips 66 announced it was acquiring Pinnacle Midland, a natural gas gathering and distribution firm for $550 million. P66 said the transaction will “align with long-term objectives to build out our natural gas liquids value chain.” Take a look at the Propane and Propylene export figures in tomorrow’s DOE report and you’ll see another example of how the “other” refined products are becoming the drivers of growth and profitability while the traditional refined fuels continue to stagnate.

Capitalism vs Socialism: The EIA this morning highlighted the rapid growth in oil output coming from Guyana in the past few years, a stark contrast to its neighbor who has seen oil output plummet – despite having the world’s largest oil reserves – after the country nationalized its oil projects in 2007. That divergence is threatening the latest flare up in the global oil drama, with Venezuela building up military infrastructure near the border with Guyana and threatening to annex part of the country.

RIN Values rallied north of $.50 for D4 and D6 values Monday for the first time in 6 weeks. There wasn’t a piece of news to pin the rally on as their often is with the political football known as the Renewable Fuel Standard. A week ago a federal court rejected one of several lawsuits over the RFS, keeping the 2020-2022 mandates intact. In addition there is a sense that recent cut backs and closures of renewable facilities unable to maintain profits without high subsidy values will reduce the RIN excess in the back half of the year.

Exxon reported a fire at its Joliet IL refinery over the weekend, but operations appear to have been minimally impacted as basis values in the often-manic Chicago market barely flinched following that news.

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

Pivotal Week For Price Action
Market TalkMonday, May 20 2024

Energy Prices Are Starting The Week On A Soft Note

Energy prices are starting the week on a soft note, after a strong finish pushed WTI back above $80 Friday, while RBOB rallied more than 14 cents off of its low for the week and ULSD added 11.

Plenty of geopolitical turmoil doesn’t appear to be stirring much buying interest so far. The biggest story of the weekend is that Iran’s president was killed in a helicopter crash, setting off a slew of questions in one of the world’s largest exporters of oil and violence. In other regime change news, the Saudi Crown Prince is delaying travel due to the deteriorating health of the king just as the country is about to sign a historic security deal with the US.

The market is also appearing to shrug off more “same old violence” news: Another round of drone strikes took another Russian refinery off-line over the weekend, and an oil tanker going from Russia to China was hit by a Houthi Missile, which proves the rebel group’s aim continues to be better than its judgement, particularly with Russia’s oil exports accounting for the vast majority of the southbound tanker traffic through the Red Sea. While these ongoing attacks are no doubt creating supply issues locally, they’ve yet to move the needle on the global market.

Throwing in the towel? Money managers reduced both their long and short positions in WTI and RBOB contracts last week as some big funds seemed to be giving in to the idea that the spring rally is officially over, while others may already be taking profits after the big sell-off in May. Brent crude saw more long liquidation and new short positions added, while both ULSD and Gasoil diesel contracts saw fresh bets on higher prices ahead after prices reached 10-month lows last week. The open interest on ULSD contracts reached a 2.5 year high last week as the reduction in volatility this year continues to encourage more participants to rejoin the market after bailing out during the chaos of 2022.

Two big Reuters stories on the potential “Game Changer” refineries in the Atlantic Basin: Nigeria’s huge new refinery struck a supply deal with French oil major Total, as that facility continues to ramp up production, bringing a new major buyer for WTI, and a new seller of refined products. That facility still isn’t producing much in the way of fully finished products, but it’s already sending partially refined fuels to US and European refiners for further processing. Meanwhile, Mexico’s “dream” refinery continues to be a nightmare as actual crude processing rates are just 5% of capacity despite numerous claims by the country’s president and PEMEX puppets to the contrary. The longer that refinery is unable to produce finished products, the more demand there will be for US Gulf Coast refineries who depend on Mexico for roughly half of their gasoline exports and a third of their diesel sent out of the country.

Baker Hughes reported a net increase of 1 oil rig drilling in the US last week bringing the total to 497 rigs vs 575 this time last year, while the natural gas rig count held steady at 103 compared to 141 a year ago. The increase for oil rigs was the first in 4 weeks.

Valero reported a 2nd upset in as many days at its McKee refinery in the TX panhandle that knocked an FCC unit offline. Surprisingly that appears to be the only refinery reporting a unit knocked offline by last week’s deadly storms, despite more severe weather sweeping through Houston and across much of refinery row.

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