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Market Talk

Friday, Feb 28 2020

"Get-Out" Trading Goes For A Clean Sweep

The “Get Out” trading is going for a clean sweep this week with equity and energy markets both trading in the red for another day. At this point, it looks like this will be the biggest weekly sell-off since the financial crisis in 2008 with just about anything besides U.S. Treasuries, gold and RINs being thrown out the window as many around the world continue to panic over the potential fallout from the coronavirus.

Of course everyone wants to know how much lower can we go from here? For perspective, during crisis of 2008, we saw WTI drop from $147 in July to $32 in December. RBOB went from $3.63 to $.78 and ULSD dropped from $4.15 to $1.19 during that same stretch, making this latest panic sell-off look minor in comparison.

It’s hard to say if we will see anything close to that again (keep in mind we started from values half as high as they were then) but there certainly could be much more selling to come as long as fear is driving the bus. The next natural stopping points I see on the charts are the $42 range for WTI and $1.24 for RBOB (lows from Dec 2018) $1.35 for ULSD (low from summer of 2017).

It’s expiration day for March RBOB and ULSD futures, and with the increased volatility we’ve seen lately, don’t be surprised to see some wild swings as those contracts go off the board this afternoon. Most cash markets around the country have already transitioned to pricing off of the April contracts, so those swings (if they happen) should not impact rack pricing tonight.

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

Market Talk
Thursday, Feb 27 2020

Melt-Down Continues With Coronavirus Concerns

The melt-down continues as concerns about the potential impacts of the coronavirus continue to spread much faster than the virus itself, and markets around the world are experiencing a huge flight to “safety” that’s forcing many risk assets like stocks and energy commodities sharply lower.

If current prices hold, this would be the third consecutive seven cent loss for RBOB futures, which has happened only a few times in the history of the contract, and now marks a 40 cent drop from January’s high trade. ULSD futures are unimpressed by the action in RBOB as they’ve now dropped more than 66 cents since January 8.

As is often the case during mass-liquidation events, fundamentals were largely ignored, with some bullish figures in the DOE’s weekly inventory report only able to sustain a brief price rally before the selling took over once again. Despite concerns that the coronavirus will be the end of diesel demand as we know it, U.S. diesel stocks declined for a seventh straight week, and remain well below their five-year average, while the weekly demand estimate surged to the top end of its seasonal range.

Gasoline stocks saw a similar decline, while demand ticked higher for a second week, but of course none of that matters when the world is more concerned that the virus will prevent people from driving cars.

About the only two things not selling off: RINs and West Coast basis values. RINs got another boost following reports that the White House was agreeing to limit further small-refinery exemptions from the RFS, which propelled D6 ethanol values to two year highs.

West Coast cash markets were bid aggressively following the fire at Marathon’s LA-area refinery, and other units being forced to shut while damage was assessed. Overnight there were reports of a different refinery blip in the region, which could continue to push those basis values higher.

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

Market Talk
Wednesday, Feb 26 2020

Glimmer Of Hope As Panic Selling Continues

The panic selling continues for a fourth straight day in energy futures, with WTI trading down to a 13 month low overnight, and ULSD reaching its lowest level since July 2017. There is a glimmer of hope for the bulls this morning however as U.S. equity markets are pointing higher to start the day, following their worst two-day selloff in years.

No surprise, concerns about the spread of the Coronavirus, and its impact on the economy – most notably fuel demand – are getting credit for the wave of selling. Demand for jet fuel has been particularly hard hit as flight cancellations spread from China to Europe, adding further drag on distillates in general. Chinese refiners are forced to either cut back on production, or find a new home for their barrels abroad, leading to an increase in product exports. The big question over the next few weeks is if the demand curtailments induced by travel restrictions will spread faster than the virus, or if the fears of demand contraction are worse than reality.

The runaway rally in RBOB spreads finally stalled out Tuesday after reports that Exxon’s Baton Rouge refinery was restarting several units that had been shut down since a fire two weeks ago. Even though futures are sharply lower again this morning, don’t be surprised to see some West Coast cash prices move higher today after Marathon’s LA-area refinery suffered a large explosion and fire overnight.

The API report showed minimal changes in petroleum inventories last week. The industry group was reported to show a build in crude stocks of 1.3 million barrels, while gasoline stocks grew by 74,000 barrels and distillates drew by 706,000 barrels. The DOE’s weekly report is due out at its normal time this morning.

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

Market Talk
Tuesday, Feb 25 2020

Cooler Heads Prevail In Tuesday's Trading

Cooler heads are prevailing so far in Tuesday’s trading, following a Monday panic that saw the DJIA have its third worst day on record, U.S. Treasuries come within a few ticks of all time low yields, and energy prices fall back towards their lows for the year.

RBOB futures continued to show their relative strength during the sell-off, ending the day with just a fraction of the losses witnessed in crude and diesel thanks in large part to the runaway rally in the March/April spread. Several refinery issues – Bayway and Baton Rouge most notable – seem to be underpinning the strength in prompt pricing, daring physical players to try and bring in a winter barrel before the summer RVP change-over to capitalize on the unusual strength in winter gasoline prices.

The EIA published a new look at U.S. crude oil imports this morning, noting how the complexity of U.S. refineries makes it important to continue importing heavy crude grades to maximize profitability, in spite of record domestic oil production.

The Dallas FED’s Permian Basin Economic indicators report showed that hiring in the country’s most prolific oil patch stagnated last year – consistent with the drop in rig count we’ve been seeing – but wages and total crude output continue to climb in spite of the activity slowdown. The report also suggests that the recent price collapse has the area near the tipping point of another bust.

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

Market Talk
Monday, Feb 24 2020

Virus Concerns Knock Global Equity And Energy Markets Lower

Fear has taken hold of financial markets again with new virus concerns outside of China knocking global equity and energy markets sharply lower to start the week. Safe havens like U.S. treasuries and gold are reaching multi-year highs, while most other risk assets are seeing heavy losses. Refined products are off nearly 10 cents from Thursday’s high trade, snapping the upward trend lines that had formed in the past two weeks, and threatening a test of the February lows.

Money managers had mixed reactions last week, reducing net length in WTI and Brent crude oil contracts to multi-month lows, but increasing bets on higher RBOB prices for a second straight week, and reducing the net-short position in ULSD. Based on the selling we saw to end last week, and start this one, we could see another large liquidation in this week’s report.

Baker Hughes reported one new oil rig put to work in the U.S. last week, with the total rig count holding steady so far for the year.

Saudi Arabia is reportedly considering breaking the OPEC/Russia alliance and making a new output cut to limit the damage to oil prices.

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

Market Talk
Friday, Feb 21 2020

Energy Futures Face Meaningful Sell-Off

The recovery rally is under attack this morning as energy futures are facing their first meaningful sell-off in more than a week. Virus fears and OPEC inaction are once again taking the blame, while some weak fundamental data in yesterday’s DOE report certainly aren’t helping encourage buyers to step back in.

Part of the reason products are leading the move lower this morning: U.S. demand continues to look sluggish for both gasoline and diesel, and U.S. refinery runs made a counter-seasonal increase last week, in spite of two major refinery issues. The bulls will make note that at least four other refinery issues have happened since that data was collected, making it unlikely that we’ll see that trend continue.

U.S. gasoline inventories have made their seasonal turn, dropping further away from record highs last week. We should see gasoline inventories continue to drop steadily over the next six to eight weeks as the spring RVP transition gets into full swing. The exception to the rule so far has been in the rounding error known as PADD 4, which saw gasoline inventories set new all-time highs last week, exacerbating the annual feast-or-famine supply swings in the Rocky Mountain region.

U.S. ethanol stocks reached a new all-time high last week, making last year’s fears of a bad planting season risking supply look silly.

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

Market Talk
Thursday, Feb 20 2020

U.S. Equities Pull Back From Record Highs

The sigh of relief rally in stocks and energy prices looks like it may be taking a break this morning as U.S. equities pull back from new record highs set in Wednesday’s session.

The API was said to show a build of 4.2 million barrels in U.S. crude oil inventories last week, while both gasoline and distillates saw declines of around 2.6 million barrels. The EIA’s weekly report is due out at 11 a.m. Eastern today.

That increase in crude, and decrease in refined products is consistent with the heavy maintenance activity expected at U.S. refineries this time of year, and with the six or more unplanned shutdowns we’ve experienced over the past week. That pattern has also helped crack spreads recover from the multi-year lows seen in several markets earlier this year.

The FED minutes noted that the committee that sets monetary policy was keeping a close eye on impacts from the coronavirus, which seems to be translated to more “bad news is good news” if you like low interest rates, which helped U.S. equity indices set fresh record highs.

Something to keep an eye one: The U.S. dollar is reaching multi-year highs this week, which can be a headwind for dollar-priced commodities like petroleum products, and even for U.S. stocks. So far all three asset classes are rallying in tandem, which historically isn’t something that lasts for long stretches of time.

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

Market Talk
Wednesday, Feb 19 2020

Energy Complex Carves Out A Bottom Following Price Collapse

Oil and gasoline prices are trading at three-week highs to start Wednesday’s session, as the energy complex seems to be carving out a bottom after the viral price collapse in January.

Much of the early buying is being blamed on U.S. sanctions against Russian oil firm Rosneft, over its dealings with Venezuela. Near term, these sanctions are likely to complicate shipments for what little oil is still flowing from Venezuela, while longer term it raises tensions between the world’s two largest oil producers.

Another bullish headline: Rocket attacks in Libya – some of which forced the closure of the country’s largest fuel port – have put an end to cease-fire talks. More than one million barrels/day of oil production – nearly one percent of global output - remains shuttered due to the ongoing violence.

Ethanol RINs reached a nine-month high Tuesday, more than doubling in value since three small refinery exemptions to the RFS were quashed by a circuit court last month. The industry continues to debate whether this ruling could spread to other small refineries.

At least four different unplanned refinery issues from the Gulf Coast to the West Coast were reported in the past 48 hours, but seem to have failed to inspire any buying as basis levels in both markets dipped in Tuesday’s trading.

While financial markets await the minutes of the latest FOMC meeting to see when the next rate cut might happen, take a look at the article written by the Dallas FED President on economic conditions and the oil industry. 

A few highlights below:

It is the view of Dallas Fed economists that global oil production (crude oil and liquids) will increase by 0.7 mb/d to approximately 102.3 mb/d from fourth quarter 2019 to fourth quarter 2020.[15] This production forecast assumes growth of 0.7 mb/d in the U.S. and 0.7 mb/d in other non-OPEC countries, and a decline of 0.7 mb/d in OPEC oil production.

In the U.S. more broadly, lower oil prices should benefit U.S. consumers by freeing up more of their disposable income for the consumption of non-oil goods and services. However, because the U.S. is no longer a net importer of oil and petroleum products, the benefit to U.S. GDP of lower oil prices for consumers may be increasingly offset by the negative impact on domestic energy producers in terms of capital spending and employee compensation.

…due to the impact of the [corona] virus, first quarter 2020 global oil demand will decline by approximately 0.4 mb/d versus the first quarter of 2019. It further assumes that a substantial portion of this consumption decline will reverse in subsequent quarters of 2020. It is worth noting that the expected first-quarter consumption decline would be the first year-over-year drop in quarterly oil demand since the Great Recession of 2007–09.

Dallas Fed energy economists expect that global energy consumption will increasingly reflect reduced reliance on fossil fuels (oil, natural gas and coal) as a share of total consumption. This reduced reliance is primarily due to expected growth in renewable energy.

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

Market Talk
Tuesday, Feb 18 2020

Negative Sentiment Spills Into Commodity Space

The energy complex is selling off following Monday’s partial holiday, with negative sentiment from equity markets appearing to spill over into the commodity space.

The ripple effects of the coronavirus continue to manifest in various ways, from Apple’s earnings forecasts, to disruptions in waterborne trade. The EIA added more color to its demand estimate reductions for 2020 this morning due to the direct and indirect impacts of the virus, while also highlighting the bearish impact the record-warm winter has had on heating demand.

RBOB continues to outperform the other petroleum futures contracts as reports of additional unplanned downtime at the Bayway, NJ refinery keep upward pressure on cash prices and calendar spreads. The chart below shows that the March/April RBOB spread, which represents the difference in winter and summer RVP grades, has already been reduced by nearly one-fourth since news of that refinery downtime first broke.

While the RBOB strength may be the most notable, it’s certainly not the only contract seeing relative strength due to unplanned refinery hiccups. Group 3 ULSD basis values rallied more than a nickel last week thanks to a pair of unplanned shutdowns, while west coast values remain at lofty levels as it seems like there’s a new report of a refinery unit problem almost daily.

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

Market Talk
Monday, Feb 17 2020

Abbreviated Trading Session Starts Mixed

Energy futures are starting Presidents’ Day abbreviated trading session mixed this morning. The prompt month gasoline contract is up about a penny per gallon, while its distillate counterpart is down about the same. American and European crude oil benchmarks are pretty much flat so far, sitting on opposite sides of unchanged.

The two-week fire sale of WTI longs by the money manager category of commodities traders slowed last week with the liquidation of just over 9,000 contracts. It looks like the fun is only getting started for Brent crude however, as this week’s drop in speculative longs breaks through the five-year seasonal average. It will be interesting to see if the liquidation slows as it reaches the low end of the seasonal range, like WTI did this week, or if the risk-off mentality will draw new lows on the chart.

Baker Hughes reported the addition of two working oil rigs last week. Despite the sizable drop in WTI prices, last week’s number brings the total net change in rig count to +8 since the beginning of the year. While demand concerns related to the Wuhan virus still seem to loom over producers, there seems to be a light at the end of the tunnel as some start to ask ‘what happens next?’

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

Market Talk
Friday, Feb 14 2020

Futures Prices Jump Around

Futures prices jumped around some yesterday trying to discern the status and implication of the Wuhan virus; questionable data from China isn’t helping much. The complex had a mixed settlement yesterday with diesel adding nearly 50 points while gasoline drifted just south of unchanged.

The EIA published a note this morning that natural gas prices have reached a new two decade seasonal low citing low demand from an abnormally warm weather as the culprit. The same phenomenon seems to be a factor in the tumble diesel prices taken since the beginning of the year.

WTI futures are looking to hold on to its first weekly gain since the beginning of January as it leads the complex higher this morning with gains of 1.25 percent. Gas and diesel futures are drifting higher in tandem adding .3 percent so far this morning. Valentine’s day and the general Friday feel-goods might be enough to buoy prices through the weekend amid global energy demand concerns.

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

Market Talk
Thursday, Feb 13 2020

Taking A Breather After New Monthly Highs

The energy complex is flat this morning with WTI and HO futures trading up 0.2% and RBOB and Brent trading lower about the same. The prompt month benchmarks will likely be content taking a breather today after new monthly highs were set yesterday on relaxing fears of a coronavirus epidemic. Meanwhile on Wall Street, increased fears of a coronavirus epidemic is taking credit for this morning’s sell-off.

The EIA’s total crude oil inventory build outpaced the API’s estimate by about 1.5 million barrels as production returned to its all-time-high at 13 million barrels per day. Refinery runs along the Atlantic coast continue to set new seasonal lows after last year’s closing of the PES refinery and recent hiccups with the Phillips 66 in Linden, NJ.

Refined product charts have put technical barriers between current prices and floor-apparent set earlier this month. Prompt month RBOB broke through its 20-day moving average yesterday, leaving the way open for the contract to challenge the 50-day about four cents higher. HO is eyeing its 20-day MA this morning which, if broken, could open the gates to 15 cents of upside.

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

Market Talk
Wednesday, Feb 12 2020

Prompt Month Gasoline Contracts Lead The Pack

A decrease in the acceleration of confirmed cases of the Wuhan virus in China has energy futures bought up today: prompt month gasoline contracts lead the pack today with a gain of four percent, and both American and European crude oil benchmarks, along with diesel futures are up nearly three percent. The virus status update comes along with downward-revised production plans from Chinese refiners and a decreased oil demand projection from OPEC.

The Energy Information Administration published its monthly market report yesterday, noting a decrease in global petroleum demand of nearly one million barrels per day. More interesting however is the Administration basing its Short Term Energy Outlook on the assumption that OPEC will cut production levels even further than it last agreed to back in December.

The American Petroleum Institute reported a six million barrel build in crude oil inventories yesterday, accompanied by a gasoline build of one million barrels. Diesel stocks showed the only draw-down in national stockpiles at over two million barrels. The Department of Energy’s inventory report is due out at its regular time today.

Bearish production notes from China, dropping demand estimates from OPEC and the U.S., and a build in inventories seems like it should have the market reeling, not bouncing through technical resistance levels. Perhaps today we are seeing exactly how much fear of a global Wuhan outbreak was priced in to the energy market.

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

Market Talk
Tuesday, Feb 11 2020

Early Recovery Bounce Takes Place

Energy prices continue to search for a bottom this morning, with an early recovery bounce taking place after Brent crude reached one-year lows during Monday’s sell-off. The ripple effects of the coronavirus quarantine continues to dominate the headlines, keeping fear in the driver’s seat for energy commodities, even while most equity markets seem to have moved past the fear of contagion.

A Bloomberg note helps explain how the reaction to the coronavirus is complicating shipping logistics in addition to hurting demand for fuel and other commodities, which seems to be driving the recent disconnect between energy and equity markets that had been attached at the hip for large periods of time last year.

RBOB outperformed the rest of the complex for a second straight day during Monday’s session, following reports that the Bayway NJ refinery may be forced to keep its damaged FCC unit offline for the entire month. NYH gasoline basis values also rallied for a second day, but were outpaced by a stronger rally on the west coast where yet another refinery upset sent cash prices in LA and the Bay Area higher even while futures were dropping on the day.

It’s data deluge week with the EIA, IEA and OPEC all scheduled to publish their monthly market reports over the next three days. The EIA’s STEO will be out later this morning, then OPEC’s report tomorrow and the IEA’s Thursday. Expect demand estimates to be cut across the board as analysts try to predict the fallout of China’s economic slowdown.

The EIA took a look at fuel-switching capabilities in the U.S. electric grid this morning, noting that 13 percent of capacity can change between natural gas and fuel-oil feed stocks, which explains why there’s a spike in diesel demand during severe cold snaps. Unfortunately for producers of both natural gas and diesel fuel, there’s been minimal demand for either fuel this year as the world is going through the warmest winter on record, which has contributed to prices for both Nat Gas and ULSD reaching multi-year lows.

The IEA published a special report on the battle against climate change this morning, noting that global carbon dioxide emissions flat-lined in 2019 thanks in large part to increased renewable fuel usage, and more switching to Nat Gas from coal in electricity production.

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

Market Talk
Monday, Feb 10 2020

Energy Futures Stumble Out Of The Gate

Energy futures are stumbling out of the gate for another week after OPEC & Russia failed to agree on new output cuts, and concerns over the economic impact of the coronavirus continue to spread more than the disease itself.

RBOB futures, along with calendar spreads & NYH gasoline basis spreads all got a boost Friday from reports that the Bayway NJ refinery was forced to shut an FCC unit, and repairs may take two weeks. While total U.S. gasoline supplies remain at near all-time highs, this issue will provide some regional challenges as the East Coast is already having to work around the loss of the PES refinery last year. Premiums to ship gasoline along the Colonial pipeline’s main gasoline line reached a one-month high on the news.

Money managers continued to bail out of crude oil, with last week’s CFTC report showing more large reductions in speculative bets on higher prices for both Brent and WTI. WTI positions are now near the low end of their five year range, while Brent remains well above its average, and year-ago levels, meaning there still could be more liquidation coming. ULSD dropped further into net short territory, while RBOB contracts held near the top end of their seasonal range.

Baker Hughes reported one more oil rig was put to work last week, replacing the rig that was taken offline two weeks ago. So far for the year, six total rigs have been added. There is growing concern that the recent sell-off could be the nail in the coffin for some U.S. shale producers that had already been struggling, and that could start to show up in the weekly rig counts.

Other notable items:

Saudi Arabia and Kuwait are beginning production in the neutral zone this week for the first time in nearly five years, which could soon bring 500,000 bpd of oil production back online.

Mediators failed to reach a deal on a ceasefire in Libya, which is likely to continue reducing output by around one million barrels/day, as it has for the past month.

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

Market Talk
Friday, Feb 7 2020

Recovery Rally On Shaky Ground

The recovery rally in energy futures is on shaky ground to start Friday’s trading, as the gains made earlier in the week are quickly evaporating.

While stock markets seem to have put the Coronavirus fears on ice, petroleum contracts are having a harder time escaping the threat of demand destruction from China’s quarantine.

Refined products continue to cling to modest gains for the week, while oil prices have seen their gains erased and are on pace for a fifth straight week of losses.

The January jobs report was stronger than most estimates in terms of job creation, with 222,000 new jobs added in the month and the November/December estimates were both revised higher. Both the headline and U.S. unemployment rates ticked up slightly during the month, as the labor participation rate increased, and offset the increase in total jobs. Both U.S. equities and energy futures ticked lower immediately after the report, but have since recovered and seem to be shrugging off this piece of news.

Tensions are ramping up between the U.S. and Russia again, with the treasury reportedly considering sanctions against Rosneft over its ties with Venezuela, at the same time as a military standoff in Syria between the old cold war foes. It’s impossible to say what impact any sanctions might have until we know what they are, there’s certainly a possibility that they could end up pushing prices higher if they disrupt the global flow of oil.

RIN values have been on a steady climb higher ever since a court ruled against the EPA’s extension of three small refinery waivers from the RFS. D6 Ethanol RINs traded up to a seven month high Thursday, and have nearly doubled in value so far in 2020.

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

Market Talk
Thursday, Feb 6 2020

New Wave Of Selling Has Hit The Complex

Just when it looked like the energy market had found a floor, a new wave of selling has hit the complex in the past hour, raising doubts that the low prices for the winter are in the rear-view mirror.

After large gains in Wednesday’s session that coincided with new all-time highs for several U.S. stock indices, oil prices were up more than a dollar overnight and refined products were up more than three cents, but have since given back those gains following reports that Russia has blocked OPEC’s attempt at increasing output cuts.

The price action to end the week should be pivotal in determining if the recovery rally can continue, or if fear will take control once again.

The DOE inventory was a relative non-event during the buying spree, with minimal changes in inventory and production numbers across the country. Perhaps the most notable change was that PADD 4, which is usually just a rounding error given the low population and energy inventory, saw gasoline inventories surge to a new record high.

Refiners continue with their seasonal maintenance patterns and we should continue to see reductions in output for another two to three weeks before they ramp up through the spring.

The EIA this morning published a note on U.S. petroleum flows, showing how most regions are still net importers, even while the country has transitioned to exporter status. This reports the growing dominance of the U.S. Gulf Coast in both domestic and global supplies.

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

Market Talk
Wednesday, Feb 5 2020

An Overnight Buying Spree

Separate, unconfirmed reports of a drug that’s proving effective to stop the coronavirus, and a vaccine that may prevent further outbreaks are getting credit for a strong overnight buying spree in both stocks and energy futures.

In addition, OPEC and friends are convening for a second day, discussing if they’ll propose an emergency meeting to help stop the selling.

The API was reported to show a build of 4.2 million barrels in US crude oil inventory last week, while gasoline stocks increased by 2 million barrels and diesel stocks dropped by 1.8 million barrels. Oil prices did drop for a few minutes following that report, but recovered quickly and then were swept up in the early morning rally. The DOE’s weekly report is due out at its normal time this morning.

This rally is still meaningless unless it can hold on through an entire session, and until we start seeing prices trade and hold above some of the previous daily and weekly highs on the charts. That said, several short term technical indicators have now flipped and are pointing higher, suggesting we could be seeing the start of what could be an impressive bounce given the extreme oversold condition that we haven’t seen in several years.

One other factor that may encourage buying: As the charts below show, the demand-driven price collapse has flipped the forward curve in Brent and WTI from backwardation to contango, which will give financial incentive for physical traders to buy and hold inventory. It’s also worth noting that while prompt crude values are some $5/barrel cheaper than they were a week ago, forward values are actually more expensive now than they were last week, suggesting the long-term players are stepping in to buy as well.

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

Market Talk
Tuesday, Feb 4 2020

Energy Prices Erase Monday's Heavy Sell-Off

Energy prices are erasing most of Monday’s heavy sell-off, on the heels of rebounding stock markets around the globe. There’s a feeling that this is yet another sigh of relief rally as the spread of the Coronavirus outside of China has decelerated this week.

WTI traded below $50 for the first time since January 2019 during Monday’s meltdown, while ULSD futures broke below $1.60 for the first time since August 2017, trading as low as $1.5684 overnight, before rallying this morning. As we witnessed during last week’s one-day bounce, we’ll need to see prices sustain this rally before daring to call a bottom in the market.

If the overnight lows did in fact set the bottom for the energy market, we should also see a runaway buying spree at some point this week as traders (or more likely their trading algorithms) react to the extreme oversold condition on the charts, and create a snowball effect of short covering.

Reuters is reporting that Chinese refineries are slashing output by the most in a decade in response to the temporary reduction in fuel demand driven by travel bans.

Record inventory? While the U.S. has more gasoline in storage than ever before, West Coast prices are soaring as yet another refinery hiccup sent CARBOB basis values north of 40 cents/gallon this week. We did see a similar basis spike this time a year ago as the region started its spring RVP transition, and then those values dropped to single digits by the end of February.

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

Market Talk
Monday, Feb 3 2020

Energy Futures Pick Up Where January Left Off

Energy futures sold off overnight to pick up February where January left off, but have since recovered most of those losses on the heels of a rally in U.S. equities.

The Coronavirus continues to dominate all non-football news. While there are still few answers to how far this new virus may spread, several reports detailing how the outbreak is likely to impact far fewer people than the flu sheds light on how fear of the unknown can be such a powerful force in the markets.

January was the first month since the meltdown of 2008 that diesel futures had both a 50 cent trading range, and a 40 cent drop for the month. Diesel futures are at their lowest levels since August of 2017, and are begging for a short term bounce as several technical indicators are at their lowest levels in more than 2 years.

Chinese traders are considering declaring force majeure rather than accept delivery of fuel they don’t need which would likely force numerous LNG and Oil cargoes to find a new home, or

OPEC & friends are considering moving up their scheduled March meeting to mid-February, and may increase output cuts to limit the damage to prices being done by the temporary drop in demand.

As expected during the heavy sell off of the past two weeks, money managers slashed their net long holdings in energy contracts, and it seems like we could see that liquidation of speculative bets on higher prices continue in this week’s report.

A new note from the EIA this morning highlights how U.S. oil and natural gas production is benefiting from continued advances in technology to reach record high output even with fewer active wells.

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

Market Talk
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