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Market Talk

Thursday, Sep 30 2021

Tug Of War Based On Fear

We’re witnessing a tug of war based on fear that’s creating a choppy market for energy prices as September trading comes to a close. Reminder today is the expiration day for October RBOB and ULSD contracts, so watch the RBX and HOX contracts for direction if your market hasn’t already flipped to pricing vs November futures. 

Fears of widespread energy shortages in Europe and China have pushed some contracts to 3 year highs this week, while fears of the next financial crisis caused by a potential debt default from either Evergrande or the US government are pulling them back down. Even within the energy complex there’s a rift as ULSD and Brent prices look poised for a technical breakout to the upside, while RBOB and WTI contracts are showing signs of weakness. 

RINs had a second straight strong day, trading up to $1.08 for D6 (ethanol) RINs in the afternoon as political pressure continues to be talked about and some in the market seem to be calling BS on the alleged leaked RVO volumes.

Want a simple, non-fear-related reason why diesel prices are holding near 3 year highs? Take a look at the “Diesel Days of Supply” chart below from the DOE’s weekly report. The 5 year seasonal average is 39 days of diesel supply, last year at this time we averaged 44 days of supply, and this year, we’re just over 30 days. Most years this number doesn’t bottom out until harvest demand slows in November, which may mean we see some very tight markets over the next 2 months.

We saw a big increase in PADD 3 refinery runs last week as all but 2 of the 9 refineries shut by Ida now look to be fully online. All 4 other PADDS saw run rates decline however as seasonal maintenance gets into full swing, and there have been a handful of unplanned issues over the past 2 weeks, most notably the fallout from the LA earthquake. PADD 3 rates are probably near a short term plateau however as Shell’s Norco facility still needs at least 2 more weeks to come online, and the P66 alliance facility will need many months, if it comes back at all. 

Tropical Storm Victor was named, and is expected to become a hurricane this weekend. Fortunately, like his predecessor Sam, Victor looks to be a fish storm that will not threaten the US Coast, allowing an extended respite after a record-setting 18 storms have made a US landfall in the past 2 seasons, with 2 more months to go in this one.    

Today’s interesting read: The complexity of tearing down an oil refinery.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the weekly DOE Report.

Market Talk
Wednesday, Sep 29 2021

Stand-Off In Congress Sparks Flight To Safety

Energy futures pulled back from multi-year highs Tuesday as the latest stand-off in congress sparked a bit of a flight to safety with equity and commodity markets moving lower, while the US dollar rallied to its highest level in almost a year. The selling in energy contracts seems to be tempered by the ongoing surge in natural gas prices around the world, that is showing few signs of abating anytime soon, which will make various petroleum products more attractive as supplemental fuels. 

RIN Values saw their first day of solid buying in weeks Tuesday, as political pressure on behalf of ethanol interests was heating up. There’s still no official word on whether or not the “leaked” RVO numbers last week were real or not, and the congressional staring match over budgets suggests we may not get an answer until that latest dumpster fire negotiation is put to rest. 

Tropical Storm Teresa is expected to be named later today, and the models should start giving us a better feel by the end of the week whether or not it will pose a threat to the US.  The other storm system that was given 80% odds of developing just to the west of Teresa, is now given only 30% odds.  Sam meanwhile continues to be a gentle giant major hurricane that is politely staying out to sea.

A tale of two carbon credits:  California Carbon Allowances (CCA) values have continued their seemingly relentless march higher, reaching new record highs on a weekly basis ever since April. A huge influx in net long holdings by money managers (AKA hedge funds) coincided with this steady push higher as it seems the banksters see an easy opportunity to profit from green ambitions, particularly when most of the world is still trying to figure out how their business can participate in the net-zero movement.  California’s LCFS credits meanwhile have dropped sharply to a multi-year low, partially offsetting the increased cost of CCAs to consumers.

What’s the difference?  LCFS credits can be generated by various renewable fuel & electricity producers that can prove their product beats the carbon intensity target values set by the California Air Resource board (CARB). CCA credits meanwhile are created out of thin air by CARB.  So, as production for renewables (Renewable diesel in particular, along with biomethane, SAF, renewable electricity etc) surges, so does the production of LCFS credits, while the CCA pool stays relatively stagnant. 

In addition to the big uptick in renewable diesel production, biodiesel that used to be sold in other parts of the US has been pushed west to pick up the additional LCFS tax credit in California that was adding roughly $1.50/gallon (depending on the Carbon intensity value of the fuel) but now is “only” adding around $1.20/gallon after the drop in credit values. Keep in mind that’s in addition to the $1/gallon blenders tax credit, and roughly $2+/gallon in RIN credits for each gallon sold, and suddenly it makes sense why a fuel that costs around $6/gallon to produce can compete with diesel that’s going for around $2.25. 

Why does this matter if you’re not living in California? Odds are your state (or country) are considering their own carbon-reduction program for fuels, and if they are, odds are even better they’re considering adopting something like one of the 2 California programs. Oregon’s CFP program follows the LCFS model almost exactly, while the new proposal for New England (TCI) seems to take after the CCA model.  

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

Market Talk
Tuesday, Sep 28 2021

EU & China Continue To Grapple With Energy Shortages

A sixth straight day of gains pushed ULSD and Brent contracts to fresh 3 year highs overnight as the EU & China continue to grapple with energy shortages, and short term solutions seem to be in short supply. RBOB gasoline continues to lag behind the rest of the energy complex as the seasonal headwinds of the end of the US driving season helps alleviate concerns of shortages on that side of the barrel.

Try plastic bags instead? As we saw during the Colonial shutdown last spring, consumers are losing their minds during the fuel supply crunch in the UK, prompting pleas to avoid filling old water bottles with gasoline.

Something worth noting about this latest rally since the big selloff last Monday is that it’s pushed up the entire forward curve, not just the prompt months (see charts below) which suggests at least some traders don’t see this as a short term supply bottleneck, but a longer term structural supply shortage.  

So far OPEC & friends have remained disciplined in sticking to their gradual increases in supply despite the higher prices, with some countries in the cartel struggling to meet their quotas, proving once again that pumping oil is slightly more complicated than flipping a light switch on and off. Ultimately, the Saudi’s ability to return spare capacity to the market and an increase in US Production should be the limiting factors in this rally, but, the lingering labor shortages and damage done by Ida are going to slow the pace of those increases domestically. 

Shell’s Norco refinery, one of the two remaining refineries shut by Hurricane Ida (and one of the few refineries Shell hadn’t already shuttered or sold) is tentatively planning to begin restart in 2 weeks. The other refinery still shut, P66 Alliance, looks more like it may never reopen as reports surface that a potential buyer intends to convert it to a crude oil terminal.   

Hurricane Sam still looks like no threat to the US beyond dangerous rip currents, while the 2 other systems churning off the coast of Africa are still given high odds of development.  

So far energy and equity markets seem to be taking news of 2 FED governors’ resignations in the wake of (relatively mild seeming) stock trading controversy in stride. The US Federal reserve is arguably the most influential force in equity pricing, putting it second to only OPEC for oil market power, so it’s possible this story could still end up roiling our markets.

Today’s interesting read: An argument to change the biofuel tax credits to favor second generation technologies over “old school” biofuels that are running short on feedstocks.  If last week’s leaked RVO volumes are to be believed, the EPA may already be leaning this direction. 

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

Market Talk
Monday, Sep 27 2021

Energy Supply Crisis In Europe Spreads

Diesel prices are pushing to fresh 3 year highs, and Brent crude is making a run at the $80 mark as an energy supply shortage is spreading across parts of the world. RBOB and WTI prices are lagging behind, but still pushing solid gains to start the week.  

Today’s price action seems to reflect that the Energy supply crisis in Europe is spreading, and forcing a severe dose of reality onto those with net-zero ambitions. As we’ve witnessed numerous times following supply disruptions in the US (whether that’s fuel, or toilet paper) panic buying is making the situation even worse, and causing many stations to run dry across the UK. It’s not just Europe that’s having problems, power shortages across China are promising to increase challenges for other supply chains that have been hampering global trade for the past year. 

Feast or famine: As parts of the world are struggling with a lack of natural gas, producing nations are still struggling with how to limit the excess gas that has to be burned off in flares.  See this financial times video on the work being done to improve that process. 

Hurricane Sam blew up into a Category 4 storm with sustained winds near 150 miles per hour over the weekend, but its track has shifted favorably and it appears that it will spare most Caribbean islands and the US East Coast. There is still a chance the storm could hit the Canadian coast as it travels north, but in terms of fuel supply disruptions this storm should be a non-event.  

The National Hurricane Center is tracking 3 other storm systems, 2 of which are given 80% odds of developing, and are in a position that gives them a chance at heading for either the Gulf or East coasts next week.

Not coincidentally, as diesel prices have reached 3 year highs, the bets placed on higher diesel prices by large speculators has also reached their highest levels since 2018. The money manager trade category is less enthusiastic about RBOB and WTI contracts however, reducing their net length in both last week. 

Baker Hughes reported 10 more oil rigs were put to work last week, the 2nd straight week of double digit increases. For months we’ve read stories about how US Producers were being more conservative as prices rose, and now we’ll see if that’s really true as an industry built by “WildCatters” is once again enjoying a very profitable market.

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

Market Talk
Friday, Sep 24 2021

Natural Gas Prices Spike Around The World

Diesel prices reached a new 3 year high overnight, and the rest of the energy complex has wiped out the heavy losses we saw Monday, as concerns of Chinese contagion have been replaced by fears of fuel shortages. 

One relatively rare factor helping spur diesel prices higher: natural gas prices are spiking around the world, even before we get to winter, in what could create a very bullish scenario for supplemental electricity sources if we get a severe cold snap. Don’t forget that roughly 1 million barrels/day of refining capacity (~ 5% of the US total) was taken offline permanently last year due to weak economic conditions, and a negative long term outlook for the industry.  Those closures/conversion reduce the buffer for the supply network to absorb a disruption, and 2 more gulf coast refineries with a combined capacity north of 500,000 barrels/day are expected to be offline for several more months after Hurricane Ida, leaving the system stretched more than it’s been since the big price rally of 2008. 

Hurricane Sam has been named in the Atlantic, and is expected to rapidly intensify to a category 3 or larger storm over the weekend. The storm is still given low odds of making landfall in the US, but there’s still a large amount of uncertainty on its path until it makes its turn north, and as we saw with Henri a month ago, just a few minor shifts to the west can make a huge difference in impact. The good news for fuel supply is it looks like refining country will dodge this storm, while those in the population centers along the East Coast will need to keep an eye on this system next week.

Thursday was another volatile day in the RIN markets, as prices continued to plunge in early trading, only to bounce later in the day as doubts about the validity of the leaked RVO volumes were circulated. 

Think the driver shortage is bad here? It appears to be worse elsewhere as BP has announced restrictions on deliveries and temporary closures at some of its stations in the UK due to the lack of drivers. As we know all too well on this side of the pond, it’s not just fuel stations that are feeling the pinch, with the Christmas shopping season promising to create more headaches for industries far and wide.

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

Market Talk
Thursday, Sep 23 2021

Gasoline Prices Drag Energy Complex Modestly Lower

Gasoline prices are dragging the rest of the energy complex modestly lower to start Thursday’s trading, as they face a trio of headwinds this week. Refinery runs cranking up as Gulf Coast plants recover from storms, plummeting RIN values that reduce the cost of compliance for refiners, and a seasonal demand slowdown now that the 2021 driving season is officially behind us.

The Washington Rumor mill continues to roil RIN markets this week. Both Bloomberg and Reuters published notes Wednesday based on a leaked document that claims to show the EPA proposing cuts of roughly 15% to the blending mandates for refiners in 2020 and 2021. The market had been selling this rumor for more than a week already, with prices having already dropped nearly 30 cents since Labor day, but still dropped sharply following this. D6 ethanol RINs for 2021 traded down to 92 cents, the lowest since Mid-January, before seeing a modest bounce back to the 97-98 cent/RIN range to end the day. It’s important to note that these cuts are not yet finalized, and in the case of the 2020 volumes, they would represent a retroactive change to the “final” rule that was published in February, which makes the entire program look even more like a farce unenforceable. 

Wednesday’s DOE report was highlighted by a big jump in refinery runs, as all but 2 Gulf Coast plants look to be back online after Hurricane Ida.   Diesel saw the start of its fall demand spike, while gasoline consumption looks like it’s ready to start the winter doldrums.

The FED continued to telegraph the end of its money printing bond buying programs, and suggested that even though interest rates aren’t going to go up soon, they could start as early as mid-2022 if the recovery stays on track. Equity markets seemed to find that plan to be “good enough” and have recovered the majority of Monday’s heavy losses.

That’s not what we meant by zero carbon: A shortage of carbon dioxide, caused in large part by surging natural gas prices, is adding yet another major threat to supply chains around the world that are already struggling. This could trickle down to increased demand for crude and diesel this winter as natural gas demand reaches its peak during cold stretches. This situation also sheds a harsh light on the logistical challenges faced by the net-zero movement.

The storm soon to be named Sam is expected to swell to major hurricane status early next week. So far, most models continue to show it hooking north and keeping it offshore, but there’s still a chance that path could change.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the weekly DOE Report.

Market Talk
Wednesday, Sep 22 2021

Petroleum Prices Move Higher Following Inventory Declines

Petroleum prices are on the move higher again following more inventory declines. Diesel prices continue to hover near 3 year highs as we approach peak demand season for distillates, while gasoline prices are lagging behind as the fall RVP transition is almost behind us and the driving season comes to an end. 

The API reported a large draw of 6.1 million barrels for crude oil inventories last week, while distillates declined by 2.7 million barrels and gasoline decreased by 432,000 barrels. The DOE’s version of the inventory report is due out at its normal time this morning, and the lingering impacts from Hurricane Ida are still expected to play a big role in those numbers. 

Shell announced that damage from Ida will take until early 2022 to fix, and damage to both offshore wells and pipelines is likely to keep more than 200,000 barrels/day of oil production offline through the end of the year. Put it another way, the damage to Shell’s facilities will reduce oil inventories by 1.5 million barrels every week for the next 3.5 months unless an alternate source can replace those barrels. 

Meanwhile, the company’s Norco refinery is still closed due to storm damage and it’s unclear how long those repairs may take. It’s a similar story for the P66 refinery in Belle Chasse LA, that is up for sale, and may need more than 6 months to make repairs after the facility flooded.

Those racing to restore operations after Ida can breathe a little easier this morning as Peter & Rose appear to be non-issues, while the storm that will probably be named Sam later this week has a good chance of following those two storms out towards the open sea and not threatening the US coast line. There are still low odds that storm could get into the Gulf of Mexico so we’ll need to keep an eye on it for a while longer.

RIN prices continued their downward slide Tuesday, with both D4 and D6 values reaching fresh 7 month lows. Still no word on when the EPA will actually announce the blending targets for 2021 (which were due almost a year ago) or for 2022.  The EPA did announce Friday that it would be auditing RIN transactions to make sure that fraudulent RINs weren’t still making it through their system. 

The EIA this morning reported that energy exports reduced the US trade deficit for the first time ever in 2020, proving once again the expanding role of Gulf Coast refiners in supplying the world’s demand for both fuel, plastics, and other petroleum-based products.

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

Market Talk
Tuesday, Sep 21 2021

Biggest Declines Of The Year For Some Stock Indices

Energy and equity markets are seeing a modest recovery bounce this morning after Monday’s heavy selling that saw the biggest declines of the year for some stock indices. Contagion fears and FED uncertainty continue to be the major themes roiling markets this week, but as the Volatility index chart below shows, those themes are bothering stock markets more than they are energy.

There’s an interesting phenomenon happening on the diesel forward curve over the past week. While prompt month prices hold near 3 year highs, values 1 year forward and beyond have dipped below where they were trading a month ago. That could be a sign that diesel producers (aka oil refiners) are getting comfortable locking in crack spreads at current levels as the net short position held by the producers & merchant trade category is hovering near a 3 year low. WTI is seeing a similar pricing phenomenon with the forward curve moving into a steeper backwardation. 

Unlike diesel however, crude oil is not seeing hedging increases by producers.  In fact, the producer/merchant category is net long WTI, and the swap dealer short position hasn’t moved much in several months, suggesting the price action has more to do with extended outages in the Gulf of Mexico from Ida, than a desire by producers to lock in values around $70, even though they were more willing to lock in a year ago when prices were only at $40.    

Tropical Storms Peter & Rose continue to churn across the Atlantic, but don’t appear to be a threat to the US. The system that’s moving off the African coast is looking more ominous however, with 90% odds of developing into a storm named Sam, and on a path that gives increased odds of heading towards either the Gulf or East coast.

Shell agreed to sell its assets in the Permian basin to Conoco this week in a deal valued at $9.5 billion.  This continues a trend of oil majors based in Europe rapidly shedding traditional assets in a move towards renewables, while US based majors seem to be taking a much more conservative approach to the energy transition.

Another day, another large selloff in Ethanol RINs, which reached a fresh 7 month low Monday, trading below $1.10/RIN for much of the day as the industry continues to wait on blending targets to be released. 

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

Market Talk
Monday, Sep 20 2021

Energy Futures Hold Up In The Face Of Fear Trade

There’s a risk off mood to start the week as markets around the world are seeing a round of heavy selling pressure. Contagion fears are once again making headlines as an expected debt default by a huge Chinese real estate firm – which owes a tidy $300 Billion – seems to have spooked markets far and wide. There are also concerns about how the FED’s open market committee will telegraph the end of its latest money printing program when it meets later this week.

So far, energy futures are holding up relatively well in the face of this fear trade, holding technical support overnight, keeping the potential for another push higher later in the week alive, whereas US equities are already pointing to 2 month lows at the open.  

The National Hurricane Center is tracking 4 more systems in the Atlantic after Tropical Storm Odette came and went Friday without creating any notable disruptions. Peter and Rose were both named over the weekend, but neither appear to be a threat to the US coast. The last storm in line looks like it could be on a path towards the Caribbean however, giving it a chance to grow and potentially head for the Gulf of Mexico next week.

An earthquake near Los Angeles Friday led to at least one area refinery losing power. So far it does not appear that there were any injuries or major damage as a result of that quake. 

RIN prices continued their selloff Friday, with D6 ethanol values reaching a 7 month low as the market awaits the official word on the long overdue blending quotas. 

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

Market Talk
Friday, Sep 17 2021

Seasonal Divergence In Demand For Refined Products

Gasoline prices are moving modestly lower for a 2nd straight day, while diesel contracts are holding near multi-year highs as the seasonal divergence in demand for the refined products seems to be influencing prices again.

RINs have been the big mover this week with D6 ethanol values dropping to a 6 month low after reports that the blending quotas may have been leaked. Insert your own Trading Places joke here. 

Nicholas has stalled out over Louisiana, dumping heavy rains on areas of the Gulf Coast still trying to recover from Ida, 3 new potential storms are lurking in the Atlantic. The first is given 70% odds of developing over the next 5 days, and may brush the coast of North Carolina as it moves North East, and should avoid a direct landfall. The 2nd is also given high odds of developing and could be a threat to the East Coast next week. The third has low odds of formation as we move through the halfway point of another busy hurricane season. 

Today’s interesting reads: Why Chevron’s CEO sees tight supplies and higher prices for petroleum products persisting, and why a spike in natural gas prices is having widespread effects on various supply chains, particularly across Europe. The EIA this morning reported that the US barely held on to its status as a net exporter of petroleum products in the first half of 2021. With Europe scrambling to find new power supply options, and natural gas suddenly a hot commodity again, US producers are faced with an increasingly unpopular but increasingly profitable decision to boost production levels. 

Speaking of unpopular: The President suggested that “Bad Actors” are behind the rise in gasoline prices this year, a claim the AP (along with just about everyone in the industry) finds to be baseless. 

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

Market Talk
Thursday, Sep 16 2021

Tropical Depression Nicholas Hovering Over Heel Of Louisiana

A handful of bullish numbers published by the DOE yesterday morning pushed energy futures to multi-month highs. The prompt month diesel contract was the most noteworthy reaching levels not seen since 2019. The drop in refined product inventories (despite cratering exports), the 7.5% decline in gasoline demand, and the decreased output of gas and diesel fueled yesterday’s rally.

Tropical depression Nicholas is still hovering over the heel of Louisiana. While repairs have been halted due to the downpours, it doesn’t sound like and new damage has cropped up with the latest storm. The EIA published a note this morning highlighting the damage caused by Ida last month and the breadth of energy infrastructure shutdowns.

Colonial restarted its main Line 2 yesterday after shutting it preemptively due to flooding from the storm. The refined product artery taking product from Houston all the way up and through the Atlantic seaboard has returned to normal operations.

A system crossing the Atlantic looks to be heading towards the Lesser Antilles next week with an 80% chance of developing into an organized storm. Another looks to be forming off the Atlantic coast next week as well, projections keep it out to sea for now.

Prices are drifting lower this morning, taking a breather from this week’s rally. American crude oil, gasoline, and diesel benchmarks are shedding ~.7% so far today while the three are poised to end the week with gains. Tomorrow’s price action could be pivotal in deciding if this 18 month-long rally will push energy prices to multi-year highs or if we will finally see a sizable pullback as the US gets back to (some form of) normalcy.

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

Market Talk
Wednesday, Sep 15 2021

Inventory Data Taking Credit For Rise In Prices Today

The American Petroleum Institute estimated and across the board draw in petroleum inventories for last week. The report published yesterday afternoon showed national crude oil stocks down nearly 5 ½ million barrels with gasoline and diesel down ~2.8 million barrels. The Department of Energy is set to release the official totals at its regular time this morning (9:30 Central).

The inventory data is taking credit for the rise in prices today. After a flippant day yesterday, energy futures are climbing, with confidence, higher this morning. Prompt month gasoline and diesel futures are both up around 1.5%. West Texas Intermediate futures are up nearly 2% setting a new 6-week high.

Power outages remain the main issue in areas affected by the landfalls of Hurricane Nicholas. Now downgraded to a tropical depression, the storm has stalled out and seems content to hover over a waterlogged Louisiana. Although it may not be causing any new infrastructure damage itself, Nicholas is hampering Ida recover efforts in the Pelican State. The EIA estimates nearly 1.2 million people lost power during the late August storm.

As one dissipates another appears: the five-day outlook from the NOAA shows yet another area of interest with an estimated 20% chance of development over the next week. In the short term eyes will be on the storm brewing just off the Atlantic coast which should stay out to sea. In the long term however, the system forming off the West coast of Africa is doing so in a manner commonly seen this time of year and often results in a major hurricane.

The current outlook falls below. 

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

Market Talk
Tuesday, Sep 14 2021

Green Futures Markets Are The Theme This Week

Green futures markets seem to be the theme this week with past and present weather impacts in the driver seat. American crude oil, gasoline, and diesel benchmarks are adding .5%-1% gains so far this morning as the market intently watches for headlines on flooding and power outages along the Gulf Coast.

Tropical storm Nicholas has made landfall in southern Texas and is heading towards Houston, the center of the storm set to arrive early this afternoon. There hasn’t been any reports of refinery closures as of yet but word from the major players is they will take action as necessary to safely maintain operations if possible.  

Unfortunately it seems the Houston refinery cluster isn’t the only concern for this iteration of storm activity. Plants in Port Arthur, Lake Charles, and Baton Rouge are also within Nicholas’s forecast error cone putting over a third of the nation’s refining capacity at risk. Moreover refineries in New Orleans could be especially susceptible to flooding and power outages should Nicholas shift east over the next couple of days, with 20+ inches of rainfall estimated.

Oil technicals are flashing buy signals this week with the prompt month contract poised to test the $75 level. The recovery rally we’ve experienced for the past year and a half has more than made up for the COVID crash that took place in early 2020. Should the upward momentum seen this week sustain past some resistance levels set last month, the energy complex could look to test waters not seen since 2015.

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

Market Talk
Monday, Sep 13 2021

Oil Demand To Exceed Pre-COVID Levels Next Calendar Year

The energy complex is trading higher this morning on news that OPEC expects oil demand to exceed pre-COVID levels next calendar year. Despite the inherent conflict of interest in setting a price based on the word of someone who would like to see prices higher, the bulls have added 1-1.5% gains to the big three American petroleum benchmarks.

Traders are also noting lingering supply concerns adding to the buying pressure this morning, however tempered by Baker Hughes reporting an addition of six operating oil production platforms last week. Four of the rigs returning to service were located offshore that were shut down from Hurricane Ida. Nearly a third of the eleven closed late last month have started up again, just in time for the next summer storm.

Tropical storm Nicholas popped up in the Gulf of Mexico over the weekend, heading towards Houston with gale-force winds later tonight. While the storm isn’t likely to develop into a hurricane before marking landfall, it’s slow speed will cause widespread flooding, possibly as far as the already-soaked cities of south Louisiana.

Even after Nicholas comes and goes this week (hopefully without making mischief), the Atlantic storm procession will continue. Two areas of interest are active now with the more troubling of the pair taking aim at the Atlantic seaboard. Currently it’s a coin flip if the system will organize in the next 5 days, but the tropical wave coming off the western coast of Africa has an 80% chance to form over the next week.

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

Market Talk
Friday, Sep 10 2021

Prices Up After Yesterday's Downward Pressure

Prices are up today after yesterday’s trading saw some downward pressure on news that China plans on selling portions of its oil reserves in an effort to “stabilize prices”. Despite the announcement the energy complex is bouncing today with gas, diesel, and American crude oil futures all adding ~1.5% to their prompt month futures price this morning.

Tropical storm Mindy came and went earlier this week, dumping rain across north Florida before dissipating. Hurricane Larry will likely make landfall on the eastern-most tip of Newfoundland early tomorrow morning. Attention now turns to two areas that have a 70% chance of cyclonic development over the next five days. The system over Central America will likely garner the most attention as it looks to skip over the Yucatan Peninsula into the warm water of the Gulf of Mexico over the next week.

Near-term uncertainty prescribed the EIA’s STEO report published yesterday along with the across-the-board pull back in headline values from another EIA report (weekly inventory) seem to be taking credit for this morning’s buying action. More interesting than the drop in oil and product stocks is the pronounced impart Hurricane Ida had on crude production, refining throughput rates, and imports. While a storm knocking out a quarter of the nation’s refining capacity would have sent prices soaring nearly 10 years ago, the US’s status as a net exporter grants it the ability to turn off exports in the event of a supply disruption, limiting financial fallout for futures prices.  

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

Market Talk
Thursday, Sep 9 2021

Large Inventory Declines Across The Board Last Week

More back and forth action for energy markets this morning as 1.5 cent gains overnight have flipped to 1.5 cent losses. 

The API was said to report large inventory declines across the board last week, which isn’t surprising when almost all Gulf of Mexico oil output was closed due to Hurricane Ida, along with roughly 10% of the country’s refining capacity. Expect more of the same from the DOE’s version of the weekly status report which is due out at 11am eastern time.

Tropical storm Mindy was named late Wednesday and moved onshore in northern Florida overnight, dumping more rain on an area that’s had plenty already this year. Hurricane Larry continues to churn through the Atlantic but is not going to hit the US coast.  2 other systems are being watched by the NHC, one in the Caribbean is given just a 30% chance of developing, but is still expected to bring more heavy rain to the Texas Coast next week.      

The EIA’s short term energy outlook reduced demand expectations slightly for the next year, but noted that tight supplies caused by lower refinery runs should keep prices relatively high near term, after retail gasoline prices reached a 7 year high this summer. The report did acknowledge the influence that high RIN Prices were having on gasoline. One other interesting note from the STEO: The Producer/Merchant category of trader has shifted to a net long position in WTI futures for the first time in 2 years. That means, on average, oil producers are not hedging their oil output with crude trading near $70/barrel (aka locking in prices at multi year highs) even though they were willing to lock in prices when they were in the $30 range. 

Ethanol prices meanwhile have spiked nearly 30 cents so far in September, even though corn prices have dropped to their lowest levels of the year. A lack of liquidity in ethanol futures makes seeing the forward curve challenging, but it appears that this spike is a reflection of short term shortages not a long term change in values. 

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Market Talk
Wednesday, Sep 8 2021

Choppy Holiday Week For Energy Prices So Far

It’s a choppy holiday week for energy prices so far as an overnight rally in gasoline and crude oil wiped out Tuesday’s losses. Inventory reports are delayed a day, and are expected to show some huge swings as the industry continues its slow recovery from Hurricane Ida while keeping a wary eye out for the next storm. 

5 of the 9 refineries knocked offline by Ida are in some stage of the restart process this week, but it could be months before some are back fully, and in the case of the Belle Chasse facility, market chatter suggests it may never come back online. The big blow to production is driving a large increase in gasoline imports to the US, with estimates that we’ll see the most deliveries from Europe since the Colonial hack crippled East Coast supplies back in May.

Markets around the world are watching the European Central Bank this week as they debate how to deal with rampant inflation. Record money printing aka stimulus by central banks around the world has pushed stocks in several countries (including the US) to record highs, and there’s more than a little concern as to how the markets will react as those cash infusions come to an end. The correlation between energy and equity markets has weakened in the past few weeks, but the negative relationship with the US Dollar has become more pronounced, making any central bank policy more influential on fuel prices. 

Hurricane Larry continues to churn through the Atlantic, but is staying far enough out to sea to only threaten the US with rough seas. Newfoundland could take a direct hit from this storm, but the Come By Chance refinery that is right in the path and used to be an importer of refined products to the US has been shuttered due to economic reasons for years, so there will not be a supply threat from this storm. There’s another system in the Gulf of Mexico given 50% odds of developing, with projections show it moving east towards Florida but potentially bringing heavy rain to the oil infrastructure still trying to recover from Ida. A third potential system is moving off the African coast, with low odds of development given.  We’re just a week away from the peak of the storm season so don’t be surprised to see another storm or two named soon.

A new weight loss strategy? The Financial Times picks up the (renewable) diesel vs donuts debate. 

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

Market Talk
Tuesday, Sep 7 2021

Energy Futures Lower After Reversing Gains Seen Yesterday

Energy futures are lower so far this morning after reversing some gains seen during yesterday’s abbreviated trading session. Prompt month gasoline, diesel, and crude oil futures are all down nearly 1.5% to start the day. A decision to cut October prices for oil sales to Asia by Saudi Arabia is taking credit for the selloff today as some interpret the move as the Kingdom’s anticipation for weak short-term demand.  

Repairs are underway and production is coming back online in the areas hit by Hurricane Ida last week. It seems that the plants in the Baton Rouge area have all resumed (or in the process of resuming) operations while five refineries in the New Orleans area are still waiting for the restoration of power and/or repair damage to start cranking back up.

In addition of refinery shutdowns, Baker Hughes reported a total of 11 active oil platform closures across the nation last week. The 14 rigs closed in Louisiana ahead of Hurricane Ida were barely offset by the spare opening of production sites in Alaska, New Mexico, and Oklahoma. It would not be a surprise to see these rigs come back online as repairs are completed.

It looks like the NE has dodged a bullet this week: Hurricane Larry’s projected path has shifted east over the weekend. As it currently stands only the Canadian Province of Newfoundland remains in the storm’s path. The northern Atlantic seaboard is breathing a sigh of relief this morning as another storm hitting in such quick succession could have made an already dismal situation even worse.

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Market Talk
Friday, Sep 3 2021

Refinery Outages in the Gulf of Mexico

Energy prices are drifting higher this morning with several factors taking credit for the positive sentiment. Continued refinery outages in the Gulf of Mexico, optimism surrounding global economic recovery, and a weak US dollar are all being mentioned this morning. Gasoline prices are leading the way this morning with prompt month futures up just over 1%, diesel and American crude oil trail slightly adding just .5% so far today.

Planning on driving this weekend? You’re not alone. The EIA published an article this morning noting the highest retail gasoline prices we’ve seen since 2014. While speculators like betting on higher gas prices going into holiday weekends, the EIA attributes the rise in prices to an increase in vaccinated travelers, low national gasoline inventories, and higher crude oil prices.

Hurricane Larry churning out in the middle of the Atlantic is set to become a major hurricane by this time tomorrow. While it’s path is anything but set in stone, extrapolating its current trajectory has it slamming into the island territory of Bermuda and possibly the US Atlantic seaboard. The Northeast has already been drenched by multiple storms so far this hurricane season, the latest of which, fallout from Ida, has caused widespread destruction in the area.

The Bureau of Labor Statistics just published their September payroll report this morning. The official unemployment rate (U-3) continued to edge lower but its rate of recovery has slowed this month leading to increase in Delta variant concerns. Equities and the US dollar extend modest losses this morning on the news.

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Market Talk
Thursday, Sep 2 2021

Industry Continues To Grapple With Fallout From Ida

Energy futures are ticking higher this morning, recovering from modest losses to start September as the industry continues to grapple with the fallout from Ida, and uncertainty heading into the last weekend of the driving season. 

Ida continues to wreak havoc, 4.5 days after first making landfall.  We’re seeing dramatic images of flooding in Philadelphia and New York City and flash flood warnings continue north to Boston. No word yet if any of the few remaining refineries in PADD 1 were impacted by the storm, but given the widespread river flooding it seems at the very least we’ll see some delays in barge traffic over the next several days.  

Most of the refineries in Louisiana remain offline and recovery efforts have been hampered by a combination of lack of power and flooded roads. The two largest plants, Exxon Baton Rouge and Marathon Garyville are both reportedly attempting to restart this week. The success or failure of those startups will be critical to determine how long the local fuel shortages last, and whether or not they expand to other states since the Plantation line will need their supply to continue operating. 

Yesterday’s DOE report was highlighted by total US petroleum demand smashing its all-time high, nearly 500,000 barrels/day above the previous record set in the summer of 2018. Perhaps even more impressive is that record was set despite gasoline and jet fuel demand remaining below pre-pandemic levels, which is a testament to the strong growth in propane/propylene and the “other oils” category which now regularly surpass distillates as the 2nd largest demand category behind gasoline.

US Crude oil production ticked up to a post-pandemic high of 11.5 million barrels/day, but will drop more than 1 million barrels next week due to the Gulf of Mexico shutdowns.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the weekly DOE report.

Market Talk
Wednesday, Sep 1 2021

Impacts To Fuel Supply Network Are Significant But Largely Contained 

A month known for volatility is off to a quiet start for energy and equity markets. While damage assessments are still in the early stages, the price action in futures and cash markets continues to suggest that the impacts to the fuel supply network are significant but largely contained. 

Don’t adjust your dials: The winter-spec October RBOB contract took over the prompt position for futures today, some 14 cents below where the summer-spec September contract left off. If your local market hadn’t already transitioned to September pipeline cycles last week, you’ll notice a big jump in basis values today that will offset the drop in the futures price until the terminals start to transition to winter grades in 2 weeks. What does that mean? It means your local prices are down only about 40 points on the day so far, not 14 cents.

OPEC and Friends are scheduled to meet today, and reports suggest the cartel will not make any changes to its output plan this time around.  

The API reported a build in gasoline stocks of more than 2.7 million barrels, while crude oil and distillates both had draws of roughly 4 million and 2 million barrels respectively. That report probably explains why RBOB has held modestly in the red overnight, while WTI and ULSD see small gains. The DOE’s version of the weekly statistics is due out at its normal time this morning.  Today’s report may have less influence than normal as the data was collected before nearly all Gulf of Mexico oil production was shut, along with more than 2 million barrels/day of refining capacity. Following most hurricanes that hit the area, we typically see a sharp rebound in production that creates chart stalactites, but it could be a little different this time around as damage to Port Fourchon, which moves roughly 90% of offshore oil, could prevent some of those wells from coming back online as quickly as they would if the oil had a place to go.

A lack of power continues to slow the process of getting refineries and pipelines back online, although progress is being made on all fronts. The Plantation pipeline remains shut near its origin but they did announce a plan to attempt a restart later today, which should ease concerns about the product shortages spreading to more states along the East Coast. The port of Pascagoula is also reported to be back in operation with restrictions today, which should help get some product moving to Florida.

Transportation challenges are more painful than ever during this event as the long hauls that save the day in many supply disruptions simply aren’t an option in most cases due to a lack of drivers. It’s also showing up as a challenge with some terminals in the area running out of ethanol, which prevents them from selling the gasoline they have on hand. 

As Ida now targets the East Coast with flooding rains, Tropical Storm Larry has formed off the coast of Africa. This storm is predicted to become a major hurricane over the next week, but just like his predecessors Julian and Kate, he’s predicted to stay far out to sea and not pose a threat to the US.

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

Market Talk
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