2021 Starts Off In Volatile Style

Market TalkTuesday, Jan 5 2021
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2021 started off in volatile style with numerous equity and commodity markets seeing large intraday swings that created out-side down reversal bars on the daily charts, and threatened to break the upward momentum that’s propped up most of those markets the past two months. Equities are following the technical script, with futures pointing lower this morning after experiencing that bearish reversal pattern yesterday, but energy markets are trying to rally again, bucking the textbook trading guideline in the early going.

There’s a trading adage that bull markets don’t end due to bearish news, they end when the market fails to rally on bullish news. That could well be the case for oil and the rest of the energy complex after an Iraqi oil tanker needed emergency assistance over the weekend to defuse a mine attached to its hull. In addition, Iran seized another oil tanker in the Persian gulf and announced it was increasing uranium enrichment. Yet, prices made that large downward reversal on the day after reaching fresh 10 month highs earlier in the session. 

Adding to the volatility, OPEC & Friends were unable to reach an agreement Monday, and are meeting again today to try and find a consensus in the first of their new monthly meetings. Reports suggest Russia & the non-OPEC members it represents were pushing for an output increase while Saudi Arabia and the rest of the traditional OPEC delegation wanted to hold firm.    

All eyes are on (the U.S. State of) Georgia today as the balance of power in the Senate, hinges on the outcome of two runoff elections.  It’s widely believed that the financial markets prefer divided government as a check and balance of any single party’s power, and we should get a good test of that theory as the votes are counted.

RIN values continued their rally, reaching new three year highs in Monday’s trading after the EPA missed another deadline to set 2021 targets for the RFS, leaving that decision for the new administration, who most presume will be less friendly to oil refiners. One note of caution for the RIN rally, both Corn and Soybean prices had large intraday reversals (similar to what we saw in energy and equity markets), which threatened to break the strong rally that’s pushed those crop prices to multi-year highs, and contributed to the strength in renewable credits. Also, don’t forget that refiners bear the brunt of the RFS obligation and as more of them are forced to lower rates, convert units to renewable production, and/or shutter completely, the demand for those credits decreases.

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

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Energy Markets Are Ticking Modestly Higher Heading Into The Easter Weekend With Crude Oil Prices Leading The Way Up About $1.25/Barrel Early Thursday Morning

Energy markets are ticking modestly higher heading into the Easter Weekend with crude oil prices leading the way up about $1.25/barrel early Thursday morning, while gasoline prices are up around 2.5 cents and ULSD futures are about a penny.

Today is the last trading day for April HO and RBOB futures, an unusually early expiration due to the month ending on a holiday weekend. None of the pricing agencies will be active tomorrow since the NYMEX and ICE contracts are completely shut, so most rack prices published tonight will carry through Monday.

Gasoline inventories broke from tradition and snapped a 7 week decline as Gulf Coast supplies increased, more than offsetting the declines in PADDs 1, 2 and 5. With gulf coast refiners returning from maintenance and cranking out summer grade gasoline, the race is now officially on to move their excess through the rest of the country before the terminal and retail deadlines in the next two months. While PADD 3 run rates recover, PADD 2 is expected to see rates decline in the coming weeks with 2 Chicago-area refineries scheduled for planned maintenance, just a couple of weeks after BP returned from 7 weeks of unplanned repairs.

Although terminal supplies appear to be ample around the Baltimore area, we have seen linespace values for shipping gasoline on Colonial tick higher in the wake of the tragic bridge collapse as some traders seem to be making a small bet that the lack of supplemental barge resupply may keep inventories tight until the barge traffic can move once again. The only notable threat to refined product supplies is from ethanol barge traffic which will need to be replaced by truck and rail options, but so far that doesn’t seem to be impacting availability at the rack. Colonial did announce that they would delay the closure of its underutilized Baltimore north line segment that was scheduled for April 1 to May 1 out of an “abundance of caution”.

Ethanol inventories reached a 1-year high last week as output continues to hold above the seasonal range as ethanol distillers seem to be betting that expanded use of E15 blends will be enough to offset sluggish gasoline demand. A Bloomberg article this morning also highlights why soybeans are beginning to displace corn in the subsidized food to fuel race.

Flint Hills reported a Tuesday fire at its Corpus Christi West facility Wednesday, although it’s unclear if that event will have a material impact on output after an FCC unit was “stabilized” during the fire. While that facility isn’t connected to Colonial, and thus doesn’t tend to have an impact on USGC spot pricing, it is a key supplier to the San Antonio, Austin and DFW markets, so any downtime may be felt at those racks.

Meanwhile, P66 reported ongoing flaring at its Borger TX refinery due to an unknown cause. That facility narrowly avoided the worst wildfires in state history a few weeks ago but is one of the frequent fliers on the TCEQ program with upsets fairly common in recent years.

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

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Most Energy Contracts Are Ticking Lower For A 2nd Day After A Trickle Of Selling Picked Up Steam Tuesday

Most energy contracts are ticking lower for a 2nd day after a trickle of selling picked up steam Tuesday. ULSD futures are down a dime from Monday’s highs and RBOB futures are down 7 cents.

Diesel prices continue to look like the weak link in the energy chain, with futures coming within 1 point of their March lows overnight, setting up a test of the December lows around $2.48 if that resistance breaks down. Despite yesterday’s slide, RBOB futures still look bullish on the weekly charts, with a run towards the $3 mark still looking like a strong possibility in the next month or so.

The API reported crude stocks increased by more than 9 million barrels last week, while distillates were up 531,000 and gasoline stocks continued their seasonal decline falling by 4.4 million barrels. The DOE’s weekly report is due out at its normal time this morning.

RIN values have recovered to their highest levels in 2 months around $.59/RIN for D4 and D6 RINs, even though the recovery rally in corn and soybean prices that had helped lift prices off of the 4 year lows set in February has stalled out. Expectations for more biofuel production to be shut in due to weak economics with lower subsidy values seems to be encouraging the tick higher in recent weeks, although prices are still about $1/RIN lower than this time last year.

Reminder that Friday is one of only 3 annual holidays in which the Nymex is completely shut, so no prices will be published, but it’s not a federal holiday in the US so banks will be open.

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