Sign up to receive market talk updates in your inbox each day.
Confirmation Of A Partial Ban On Russian Oil Imports Throughout The EU Has Lit A Fire Under Energy Futures Prices This Morning
Confirmation of a partial ban on Russian oil imports throughout the EU has lit a fire under energy futures prices this morning. In a last-minute compromise to pass the embargo, the Union decided to block all Russian imports except those which arrive by pipeline, which make up somewhere between 15%-30%. Energy prices reacted to the news of less supply in the market as expected with the prompt month WTI futures jumping 3% to over $118 per barrel.
The July RBOB contract, being referenced by the majority of physical markets since the June contract expires today, is exchanging hands at over $4 per gallon, a dime over Friday’s settlement. July HO futures are outpacing their counterparts, adding 20 cents so far this morning, likely due to news that the Netherlands is the latest addition to the list of countries Russia has cut natural gas supplies to. Poland, Bulgaria, and now the Netherlands were all cut off for refusing to pay in rubles, while Finland had their supplies shuttered for applying to join NATO.
The first hurricane of the season, Agatha, made landfall as a category 2 storm on the west coast of southern Mexico. While causing flash-floods and mudslides in the area it initially hit, there it is a chance the diminished-but-still-organized storm could redevelop in the Gulf of Mexico and threaten the south US. Right now the National Hurricane Center gives 10% odds that Agatha can reorganize in the next 48 hours to become the first storm in the Atlantic basin this year.
The Energy Complex Is Taking A Breather Today With ULSD Futures Leading The Way Lower
The energy complex is taking a breather today with ULSD futures leading the way lower. Prompt month heating oil futures are down about 1% this morning, with gasoline and crude oil contracts posting minor losses.
While not really news, its come to mainstream attention that the US hasn’t built a new refinery in over half a century in the public’s latest round of trying to figure out why we are paying so much at the pump. Other salient, and likely more relevant, points that aren’t mentioned are retail gasoline pricing strategy (up like a rocket, down like a feather) and the slew of permanent refinery closures over the last few years.
American crude oil futures are looking to post the largest weekly gain in prices for over a month this week. Seasonal lows in stockpiles and increased refining thruput seems to be taking credit for move.
It will be interesting to see if this year’s driving season will be as busy as anticipated or if the nominally record high gasoline prices will result in a sharp decline in demand. Even if the latter proves to be the case, futures price action may not follow the prescribed path of dropping, given inventory levels are sitting around where we’d expect them to be in the fall, when refineries aren’t running at >90% utilization.
The Smaller-Than-Expected Drop In Gasoline Inventories
The energy complex opened mixed this morning with prompt month gasoline futures sinking ~.0150 while diesel trades on the green side of flat. The American crude oil benchmark, West Texas Intermediate futures, are changing hands 70 cents over yesterday’s settlement.
The smaller-than-expected drop in gasoline inventories, as reported by the Department of Energy yesterday, kept a leash on RBOB futures in Wednesday’s trading. While stockpiles are still at seasonal lows as we head into the busiest travel time of the year, the June RBOB contract pulled back from +7 cent gains yesterday to end the formal trading session only 2 cents higher.
Back to reality? Diesel premiums in the New York market dropped below 2 cents yesterday, leading some to believe the trip that took us as high as $1.20 over futures, just 13 days ago(!), to be done. ULSD inventory levels in PADD 1 remain at seasonal lows but the collapse of the prompt-second NYMEX HO futures spread seems to be the main driver for the drop in basis differentials in the region.
Nationwide refinery run rates continued their trek higher last week, reaching over 93% utilization for the first time since 2019. The drop in production levels on the West Coast and the scarcely populated PADD 4 were drastically outpaced by the increase in throughput at plants east of the Rockies.
Week 21 - US DOE Inventory Recap
RBOB Gasoline Futures Are Leading The Energy Complex Higher This Morning
RBOB gasoline futures are leading the energy complex higher this morning, despite more selling in equity markets as recession warning signals flash around the world. For this morning at least it appears that actual low inventory levels are outweighing the rumors of government intervention in fuel markets.
Gasoline prices have bounced 26 cents from Tuesday’s rumor-driven lows as it appears that whatever plans the White House has to ease pollution controls to lower prices may go the way of the SPR release, E15 waivers and other straw-grasping to deal with the supply shortage.
The API reported another large weekly draw of more than 4 million barrels of gasoline last week, which has helped RBOB futures lead the complex higher overnight. Diesel inventories saw a small decline of less than 1 million barrels, while crude stocks increased by only 567,000 barrels even though more than 6 million barrels were released from the SPR last week. The DOE’s report is due out at its regular time today, and will be delayed a day next week due to Memorial Day.
Speaking of which, futures will trade in an abbreviated session Monday, but the spot benchmarks (Argus, Platts, OPIS) will not be published. Those that remember the Black Friday meltdown in futures 6 months ago will be forced to keep an eye on things Monday morning.
The return trip to reality for New York Harbor ULSD is nearly complete, with basis values dropping more than $1.20/gallon over the past 2 weeks, and outright values off more than $1.30. Feast to Famine: After the crazy spike in New York Jet fuel markets a little over a month ago, Colonial pipeline is hosting a surplus auction of Jet Fuel as apparently some shippers sent product north without a place to store it. It seems unlikely that we could see a similar situation with ULSD given the global tightness, but this industry does have a remarkable way of overhealing itself, especially when there are dollars, and not points, per gallon at stake.
So THAT’s why they’re based in Switzerland? Glencore has agreed to pay nearly $1.2 Billion to settle charges around the world of bribery and price manipulation in energy markets. The commodity price manipulation case centered around traders manipulating the Platts 30 minute trading window for fuel oil products. Platts was not a target of the investigation and maintains its methodology is sound. Meanwhile, people who get their car stolen out of their own driveway can still get a ticket if they left the vehicle running unattended in several states.
The Rumor Mill Is Hard At Work This Week With Multiple Reports Of New Ideas Coming From The White House To Ease High Fuel Prices
The rumor mill is hard at work this week with multiple reports of new ideas coming from the White House to ease high fuel prices – which were already on a path to easing themselves – now roiling prices.
Monday morning saw reports that the White House was considering a release of the North East Strategic Heating Oil reserve to ease diesel prices in the region, but the market seemed to largely shrug off that news as prices had already fallen more than $1/gallon in the prior week, and a 1 million barrel release would do little to improve inventory levels that are 20 million barrels below their average, and 40 million barrels below where they were 2 years ago.
Monday afternoon after the close another report suggested the White House was also considering pollution waivers on gasoline to lower prices this summer. RBOB futures dropped more than a dime following that report, and held those losses overnight, even though there were no details about what those waivers would be, and as we’ve seen with previous emergency waivers, the NYMEX specs probably won’t change anyway.
The EPA announced Monday that it would publish its 2023 RFS targets by next April, as part of a settlement over a lawsuit for the agency not meeting its deadlines for the program which has forced the industry to guess at obligations for years. The agency is also expected to finalize the 2021 and 2022 RVOs – which should have been finalized 6-18 months ago – by June 3.
California Carbon Credits meanwhile plunged to a new low Monday south of $100/LCFS credit. This is bad news for producers of renewable fuels as their subsidy is rapidly shrinking. In January of 2021 producers of Renewable or Bio diesel with a CI score of 30 were receiving $1.65/gallon from the LCFS credits generated, and today those producers are “only” receiving around $.77 gallon. Don’t feel too bad however, that 77 cents/gallon is still on top of the $1/gallon Blenders Tax Credit (which is set to expire at the end of this year) and the $1.5-$3/gallon in RIN subsidy depending on the product.
D4 RIN values may prove particularly pivotal for producers as the increase in RIN values over the past 18 months largely offsets the drop in LCFS credit values, and may help keep some products heading for the US West Coast that may have otherwise gone to Europe.