A Healthy 2 Day Rally In Petroleum Futures Has Wiped Out The Heavy Losses Seen On New Year's Eve

Market TalkTuesday, Jan 4 2022
Pivotal Week For Price Action

A healthy 2 day rally in petroleum futures has wiped out the heavy losses you may or may not have seen on New Year’s eve. US stock markets are also pointing to fresh record highs as optimism about the overwhelming Omicron looks to be taking control.

Now that the downward sloping trend lines that pushed prices lower for 2 months were broken in the last 2 weeks of December, the charts for ULSD prices are looking bullish, with a test of the $2.40 range looking pivotal this week. Already this morning we saw an early run stall out at $2.3968, and $2.4059 marked the high set just before the Black Friday meltdown, so this resistance may not be easily broken, but if it is, the charts suggest we’ll see a run to $2.50 or higher in short order. 

The RBOB charts aren’t quite as bullish as ULSD, but have a similar setup now that the bearish trend-line that saw prices drop 65 cents in 7 weeks has been wiped out. $2.30 looks to be the pivotal level for RBOB, with a break here opening the door for a counter-seasonal rally during the weakest fundamental time of the year.

Refinery hiccups continue to lend support to futures and cash prices, with 2 more gulf coast facilities taking FCC units offline over the past few days, adding to the setback from the 2nd largest plant in the country reducing rates after a fire two weeks ago. While the winter demand doldrums make it unlikely that we’ll see widespread gasoline shortages from this rash of issues, it is another reminder (or, if you prefer, warning) that the supply network is stretched more than it’s been in decades after numerous plant closures in the past 2 years, meaning there’s less cushion for the supply chain to absorb this type of disruption.

Ethanol prices are continuing their return to earth so far this week, with Chicago spots reaching a 2 month low around $2.40/gallon, about $1.35/gallon less than what they were going for at Thanksgiving. New York and LA values still command hefty premiums to the Chicago hub as logistical bottlenecks with railcars and trucks remain, but both are trading more than $1/gallon below where they topped out about a month ago.

RIN values meanwhile have had diverging paths depending on the contracts. After the D4/D6 spread blew out to a record north of 60 cents/gallon in the wake of the EPA’s new RVO suggestions, the gap between bio and ethanol RINs has shrunk dramatically in the past 10 days. Adding to that, there was 20+ cents of backwardation between 2021 and 2022 values for D4s, which has caused a big drop in current year values now that the calendar has flipped. 

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Market TalkFriday, Jun 2 2023

Energy Prices Up Over 2% Across The Board This Morning

Refined product futures traded in an 8-10 cent range yesterday with prompt heating oil settling up ~6 cents and RBOB ending up about flat. Oil prices clawed back some of the losses taken in the first two full trading days of the week, putting the price per barrel for US crude back over the $70 mark. Prices are up just over 2% across the board this morning, signifying confidence after the Senate passed the bipartisan debt ceiling bill last night.

The EIA reported crude oil inventories up 4.5 million barrels last week, aided by above-average imports, weakened demand, and a sizeable increase to their adjustment factor. The Strategic Petroleum Reserve continues to release weekly through June and the 355 million barrels remaining in the SPR is now at a low not seen since September 1983. Exports increased again on the week and continue to run well above last year’s record-setting levels through the front half of the year. Refinery runs and utilization rates have increased to their highest points this year, both sitting just above year-ago rates.

Diesel stocks continue to hover around the low end of the 5-year range set in 2022, reporting a build of about half of what yesterday’s API data showed. Most PADDs saw modest increases last week but all are sitting far below average levels. Distillate imports show 3 weeks of growth trending along the seasonal average line, while 3.7 million barrels leaving the US last week made it the largest increase in exports for the year. Gasoline inventories reported a small decline on the week, also being affected by the largest jump in exports this year, leaving it under the 5-year range for the 11th consecutive week. Demand for both products dwindled last week; however, gas is still comfortably above average despite the drop.

The sentiment surrounding OPEC+’s upcoming meeting is they’re not likely to extend oil supply cuts, despite prices falling early in the week. OPEC+ is responsible for a significant portion of global crude oil production and its policy decisions can have a major impact on prices. Some members of OPEC+ have voluntarily cut production since April due to a waning economic outlook, but the group is not expected to take further action next week.

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

Pivotal Week For Price Action
Market TalkThursday, Jun 1 2023

Prices Are Mixed This Morning As The Potential Halt In U.S. Interest Rate Hikes

Bearish headlines pushed refined products and crude futures down again yesterday. Prompt RBOB closed the month at $2.5599 and HO at $2.2596 with WTI dropping another $1.37 to $68.09 and Brent losing 88 cents. Prices are mixed this morning as the potential halt in U.S. interest rate hikes and the House passing of the US debt ceiling bill balanced the impact of rising inventories and mixed demand signals from China.

The American Petroleum Institute reported crude builds of 5.2 million barrels countering expectations of a draw. Likewise, refined product inventories missed expectations and were also reported to be up last week with gasoline adding 1.891 million barrels and diesel stocks rising 1.849 million barrels. The market briefly attempted a push higher but ultimately settled with losses following the reported supply increases implying weaker than anticipated demand. The EIA will publish its report at 10am this morning.

LyondellBasell announced plans yesterday to delay closing of their Houston refinery, originally scheduled to shut operations by the end of this year, through Q1 2025. The company “remains committed to ceasing operation of its oil refining business” but the 289,000 b/d facility remaining online longer than expected will likely have market watchers adjusting this capacity back into their balance estimates.

Side note: there is still an ongoing war between Russia and Ukraine. Two oil refineries located east of Russia's major oil export terminals were targeted by drone attacks. The Afipsky refinery’s 37,000 b/d crude distillation unit was struck yesterday, igniting a massive fire that was later extinguished while the other facility avoided any damage. The attacks are part of a series of intensified drone strikes on Russian oil pipelines. Refineries in Russia have been frequently targeted by drones since the start of the military operation in Ukraine in February 2022.

Pivotal Week For Price Action
Market TalkThursday, Jun 1 2023

Week 22 - US DOE Inventory Recap