News Archive

Sign up to receive market talk updates in your inbox each day.

Market TalkFriday, May 17 2024

The Recovery Rally In Energy Markets Continues For A 3rd Day

The recovery rally in energy markets continues for a 3rd day with refined product futures both up more than a dime off of the multi-month lows we saw Wednesday morning. The DJIA broke 40,000 for the first time ever Thursday, and while it pulled back yesterday, US equity futures are suggesting the market will open north of that mark this morning, adding to the sends of optimism in the market.

Despite the bounce in the back half of the week, the weekly charts for both RBOB and ULSD are still painting a bearish outlook with a lower high and lower low set this week unless the early rally this morning can pick up steam in the afternoon. It does seem like the cycle of liquidation from hedge funds has ended however, so it would appear to be less likely that we’ll see another test of technical support near term after this bounce.

Ukraine hit another Russian refinery with a drone strike overnight, sparking a fire at Rosneft’s 240mb/day Tuapse facility on the black sea. That plant was one of the first to be struck by Ukrainian drones back in January and had just completed repairs from that strike in April. The attack was just one part of the largest drone attack to date on Russian energy infrastructure overnight, with more than 100 drones targeting power plants, fuel terminals and two different ports on the Black Sea. I guess that means Ukraine continues to politely ignore the White House request to stop blowing up energy infrastructure in Russia.

Elsewhere in the world where lots of things are being blown up: Several reports of a drone attack in Israel’s largest refining complex (just under 200kbd) made the rounds Thursday, although it remains unclear how much of that is propaganda by the attackers and if any impact was made on production.

The LA market had 2 different refinery upsets Thursday. Marathon reported an upset at the Carson section of its Los Angeles refinery in the morning (the Carson facility was combined with the Wilmington refinery in 2019 and now reports as a single unit to the state, but separately to the AQMD) and Chevron noted a “planned” flaring event Thursday afternoon. Diesel basis values in the region jumped 6 cents during the day. Chicago diesel basis also staged a recovery rally after differentials dropped past a 30 cent discount to futures earlier in the week, pushing wholesale values briefly below $2.10/gallon.

So far there haven’t been any reports of refinery disruptions from the severe weather than swept across the Houston area Thursday. Valero did report a weather-related upset at its Mckee refinery in the TX panhandle, although it appears they avoided having to take any units offline due to that event.

The Panama Canal Authority announced it was increasing its daily ship transit level to 31 from 24 as water levels in the region have recovered following more than a year of restrictions. That’s still lower than the 39 ships/day rate at the peak in 2021, but far better than the low of 18 ships per day that choked transit last year.

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

Market TalkThursday, May 16 2024

Energy Prices Found A Temporary Floor After Hitting New Multi-Month Lows Wednesday

Energy prices found a temporary floor after hitting new multi-month lows Wednesday morning as a rally to record highs in US equity markets and a modestly bullish DOE report both seemed to encourage buyers to step back into the ring.

RBOB and ULSD futures both bounced more than 6 cents off of their morning lows, following a CPI report that eased inflation fears and boosted hopes for the stock market’s obsession of the FED cutting interest rates. Even though the correlation between energy prices and equities and currencies has been weak lately, the spillover effect on the bidding was clear from the timing of the moves Wednesday.

The DOE’s weekly report seemed to add to the optimism seen in equity markets as healthy increases in the government’s demand estimates kept product inventories from building despite increased refinery runs.

PADD 3 diesel stocks dropped after large increases in each of the past 3 weeks pushed inventories from the low end of their seasonal range to average levels. PADD 2 inventories remain well above average which helps explain the slump in mid-continent basis values over the past week. Diesel demand showed a nice recovery on the week and would actually be above the 5 year average if the 5% or so of US consumption that’s transitioned to RD was included in these figures.

Gasoline inventories are following typical seasonal patterns except on the West Coast where a surge in imports helped inventories recover for a 3rd straight week following April’s big basis rally.

Refiners for the most part are also following the seasonal script, ramping up output as we approach the peak driving demand season which unofficially kicks off in 10 days. PADD 2 refiners didn’t seem to be learning any lessons from last year’s basis collapse and rapidly increased run rates last week, which is another contributor to the weakness in midwestern cash markets. One difference this year for PADD 2 refiners is the new Transmountain pipeline system has eroded some of their buying advantage for Canadian crude grades, although those spreads so far haven’t shrunk as much as some had feared.

Meanwhile, wildfires are threatening Canada’s largest oil sands hub Ft. McMurray Alberta, and more than 6,000 people have been forced to evacuate the area. So far no production disruptions have been reported, but you may recall that fires in this region shut in more than 1 million barrels/day of production in 2016, which helped oil prices recover from their slump below $30/barrel.

California’s Air Resources Board announced it was indefinitely delaying its latest California Carbon Allowance (CCA) auction – in the middle of the auction - due to technical difficulties, with no word yet from the agency when bidders’ security payments will be returned, which is pretty much a nice microcosm for the entire Cap & Trade program those credits enable.

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

Market TalkWednesday, May 15 2024

Week 19 - US DOE Inventory Recap

Market TalkWednesday, May 15 2024

Another Wave Of Selling Pushed Energy Futures To Fresh Multi-Month Lows On Tuesday

The search for a bottom continues after another wave of selling pushed energy futures to fresh multi-month lows on Tuesday. While most of the futures complex remains on the edge of a technical breakdown, we still haven’t seen the snowball effect of selling that signals the bulls (or more likely their trading algorithms) have finally thrown in the towel.

The most important technical test of the day comes from the RBOB futures contract that managed a modest bounce off of its 200-day moving average Tuesday, and could make a case for a recovery rally if it’s able to sustain a move higher from here. If that layer of support breaks however, there’s not much on the charts to prevent another 20 cents of losses.

We’re seeing a bit of the opposite reaction this morning to the May CPI report that came in just below expectations than we did yesterday when the PPI report showed inflation was still running hot. Both refined products added a penny in the first few minutes following the report, tagging along with a bounce in US equity futures. The annual inflation rate from the CPI came in at 3.4%, which is still well above the FED’s target of 2%, but the monthly rate of .3% was slightly lower than many estimates around .4%. Both the PPI and CPI reports showed the spring rally in fuel prices leading the tick up in inflation, which give us good reason to believe we’ll see lower numbers in June now that both gasoline and diesel futures have dropped 40 cents from their April highs.

ULSD futures hit their lowest level since July 5th of last year, which was just before the contract rallied more than $1/gallon in the next two months. Physical traders are also acting bearish on diesel contracts with more heavy selling in the LA and Group 3 markets which dropped to 14 cent discounts to futures Tuesday, but were left in the dust by Chicago values that collapsed to a 30 cent discount.

The latest crash in Chicago diesel basis combined with futures trading near a 10 month low pushed cash prices to the lowest level we’ve seen since December 2021, offering a seasonally unusual opportunity for those that are still waiting to lock in their fuel price for the next year.

The diesel overhang is also witnessed in the ongoing collapse in California LCFS credit values which reached an 8 year low Tuesday at $45/MT yesterday, down from $140/MT just over 2 years ago. The drop in LCFS values combined with last year’s collapse in RINs and the upcoming change to the blender’s tax credit has already caused the closure of a few biodiesel plants, a re-conversion of a refinery back to traditional fuels, and then Tuesday the world’s largest RD producer issued a profit warning due to a continued decrease in both diesel prices, and the subsidies for renewables. For those that lived through the early days of the ethanol industry that included multiple cycles of bankruptcies and frequent regulation changes wreaking havoc, this cycle on the diesel side of the barrel feels oddly similar.

The IEA continues to bang a bearish drum to try and counteract OPEC’s bullishness in their monthly reports, citing weak demand in Europe as a driver of OECD nations moving into fuel consumption contraction in the first quarter of 2024. The tax-payer funded agency also acknowledged the drop in refinery margins in April as the distillate glut continues across much of the world, while also noting that refinery run rates are set to increase further in the back half of the year. The report also noted that even if OPEC & Friends (now Rebranded as DoC) maintain their output cuts through 2025, growth in output from the US, Guyana, Canada and Brazil will be enough to keep world supply outpacing demand.

RIN prices got a quick bounce this week after a Federal Court denied a refinery suit against the EPA’s RFS rules for 2020-2022, but already gave back those gains yesterday, with D4 and D6 values holding around the $.45/RIN mark, down slightly from this time last year when they were worth about $1.50.

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

Market TalkTuesday, May 14 2024

Energy Prices Are Trading At Multi-Month Lows

Energy prices are trading at multi-month lows and are on the verge of a technical breakdown this morning after Monday’s attempted rally fizzled, and concerns over high inflation and low demand both seem to be keeping buyers at bay.

The complex was trading modestly lower overnight, and then the slide picked up steam following the April Producer Price Index (PPI) report which showed stubbornly high inflation of .5% for the month (which would annualize to 6%) giving the FED another reason to hold off on cutting interest rates. The bright side to this report is that the main contributor to April’s higher inflation reading was higher energy prices, and with the sharp pullback we’ve seen over the past month that component of pricing pressure should come down in the May report.

OPEC continues to bang a bullish drum in its monthly oil market report, increasing its economic estimates for Q1 of this year, and holding its forecasted demand growth steady at 2.8% and 2.9% for 2024 and 2025 respectively. The report also noted big decreases in clean-product tanker rates with east of Suez prices down 10% and West of Suez rates down 20%, in a sign that the physical market is not stressed over the potential shipping disruptions around the Middle East. Refinery margins declined across all major global markets as an end to a busy spring maintenance season and new capacity increased output.

What’s up Doc? The cartel also made a tweak to its monthly report and will now be highlighting output and demand for the countries participating in the Declaration of Cooperation (DoC…aka OPEC & Friends) to demonstrate solidarity and unity, which may signal that some in OPEC are getting nervous that the members may become more uncooperative in the coming months. Total OPEC output dipped by 48mb/day during April with declines in Nigeria and Iraq offsetting increases in Iran and the Congo. Total DoC output declined by 246mb/day during the month with Russia’s output declining by 154mb/day and Kazakhstan’s output down by 50mb/day.

Space on Colonial’s main diesel line (Line 2) settled in positive territory for the first time this year, as the building contango for distillates helps to incentivize shippers. There also appears to be another buildup of un-wanted inventory of distillates in several regional markets with basis values in LA, Chicago and the Group 3 market all reaching multi-month lows this week.

Some of the weakness in diesel prices can be blamed on recent wet weather delaying planting in several states, and those delays are also helping corn and ethanol prices rebound to approach their highest levels of the year.

New tariffs on Chinese EV’s are making headlines this week, but it’s a potential tariff on Used Cooking Oil (UCO) from China that could have a larger impact near term on the fuel industry as US grain processor think it’s unfair that China dares recycle oil to the detriment of their food to fuel factories.

Speaking of EV’s, the EIA this morning wrote that the US share of electric and hybrid vehicle sales decreased on the first quarter of 2024 after more than 3 years of steady growth.

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

Market TalkMonday, May 13 2024

Struggling Energy Markets Searching For Stability

Energy markets are still trying to find a floor after a weak finish Friday left refined products at their lowest weekly closing level in several months. For RBOB futures, Friday’s drop left the contract at its lowest level since February, when the prompt contract was a winter spec that traded roughly 25 cents below the current summer values. That slide on the weekly charts leaves the contract in perilous technical territory with a slide into the $2.20 range likely if buyers can’t maintain the current push back north of the $2.50 mark this week. ULSD futures ended the week at their lowest since last July, and a similar slide towards $2.20 appears to have a good probability if the early buying today isn’t sustained. That said, both contracts are in oversold technical territory on the daily charts, so a bigger bounce is certainly possible.

Ukraine carried out more drone strikes on Russian energy assets over the weekend, with the Lukoil Volgograd refinery reportedly forced to take units offline. That facility was also hit by a strike back in February, and reported it was back at full rates in April. In addition, strikes were reported at a fuel depot outside Moscow that serves 3 local refineries.

A week ago, it looked like the cycle of hedge fund liquidation in energy contracts had run its course, but the latest CFTC data showed more heavy selling by money managers across the energy complex as of last Tuesday with a new decrease in bets on higher prices of more than 120,000 contracts. New short bets on crude oil contracts were also a theme for the week as the money manager category continues to show itself as the momentum chasers as those bets decided to wait until after prices had dropped $10/barrel over the prior month to decide to bet on lower prices. Based on the soft finish to end last week, it seems likely there was more selling from hedge funds that we’ll see in this week’s CFTC report, although the volume is probably less than the most recent report.

Baker Hughes reported a net decrease of 3 oil rigs drilling in the US last week while natural gas rigs increased by 1. Natural gas prices in the US had a healthy rally to a 3-month high last week after a brutal quarter for producers. It’s worth noting that the rally in US natural gas prices far outpaced the stagnant price moves of the main European contract, which suggests that the US market is starting to price in an increase in LNG exports while Europe maintains healthy supplies, in stark contrast to the market of 2 years ago when a dire supply situation in Europe created huge price swings in both US natural gas and diesel prices.

The EIA this morning highlighted how Brazil led a shift in countries buying Russian diesel exports over the past year, which has helped maintain the country’s product and cash flows despite widespread sanctions. The data provided showed an increase in year-on-year diesel exports as of March, which is when the refinery strikes picked up their pace, so we’ll still need to wait a while longer to get a good read on the direct impact of those strikes.

Chevron Pasadena, Valero Pt Arthur and Delek Big Spring all reported upsets to the TCEQ over the weekend, although none of the facilities appear to have had to reduce run rates as a result. The Big Spring filing noted a lightning strike as the cause of the upset, adding to the long list of weather woes at that facility.

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