A Strong Start And Weak Finish Sets The Stage

Market TalkWednesday, Aug 12 2020
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A strong start and weak finish Tuesday set the stage for a technical selloff in both energy and equity markets, as the recent bull rally seemed to run out of steam. Reversal bars on the daily charts after WTI flirted with a five-month-high and the S&P 500 came close to a new record high only to end lower on the day, suggested we may be due for a heavy round of selling. Instead, both asset classes are moving higher again to start Wednesday’s session, with bullish inventory figures seeming to help NYMEX futures erase yesterday’s losses and diminish the technical threat.     

The API was said to report inventory draws across the board last week, with crude stocks down 4.4 million barrels, diesel down 2.9 million barrels and gasoline lower by 1.3 million barrels. The DOE’s weekly report will be out at its normal time this morning.

Any bullish sentiment from the weekly inventory data is being held in check by more bearish outlooks from the EIA and OPEC monthly reports. 

OPEC’s monthly oil market report lowered expectations for global economic activity and oil demand, while increasing its forecast for supplies. OPEC’s production increased by nearly one million barrels/day on the month as the carte’s output cut agreements started to ease. The report also noted the lack of investment flows into the oil markets in recent months, while Gold and other commodities have seen record setting action

The EIA’s Short term energy outlook painted an uncertain picture, as it has the past several months, and noted how July prices stagnated as the demand recovery battled to a stalemate with the threat of additional COVID shutdowns.

The August report used a smaller reduction in U.S. GDP than the July report, but despite that relative improvement, the forecast suggests that U.S. energy consumption in 2021 will still be lower than in 2019, as the COVID recovery is expected to stretch further into the future. 

One notable item from the report is that the price curve for Oman crude flipped from backwardation to contango in the last two weeks of July, suggesting that Asian refinery runs – particularly in China – have slowed, while Middle Eastern production comes back online.    

The latest in a long line of renewable diesel projects planned for 2022 was announced Tuesday as an alliance that will see ExxonMobil buying the output from the refinery in Bakersfield, CA that’s being retooled for RD production. This is at least the fourth traditional refinery being converted to RD production that’s been discussed in recent weeks, and given the state of environmental rules and weak refinery margins, it’s likely not going to be the last.

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

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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.

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Refined Products Seeing Small Losses Of Around A Penny While Crude Oil Contracts Hover Just Above Break Even

Energy futures are taking a breather to start Tuesday’s trading, with refined products seeing small losses of around a penny while crude oil contracts hover just above break even.

No new news on either the Red Sea shipping or Russian Refining attacks this morning, so Cocoa prices seem to be taking over the commodity headlines while energy markets wait on their next big move.

RBOB gasoline futures set a new 6-month high Monday at $2.7711, which leaves the door open on the weekly charts for the spring rally to continue. A run at the $3 mark is certainly possible in the next few weeks before the typical seasonal price peak is set just before the start of driving season.

A container ship lost power and crashed into the Francis Scott Key bridge in Baltimore this morning, causing a devastating collapse. While cargo shipping into the area will no doubt be impacted by this event, fuel supplies are unlikely to see any notable change since the 9 fuel terminals in Baltimore are primarily supplied by Colonial pipeline. Barges from Philadelphia refineries do supplement Baltimore supplies at times, and those vessel flows will be impacted at least until rescue operations are completed and the bridge sections removed from the waterway. That said, since shipping up from the Gulf Coast via Colonial is generally cheaper than shipping an NY Harbor-priced barrel south, the amount of supply disrupted by this event will be minimal.

While we’re still waiting on the official forecasts for the Atlantic Hurricane season, early reports continue to suggest that we could be in for a very busy year due to warm water temperatures and a forming La Nina pattern.

Dallas meanwhile is preparing for a different sort of disruption, with city officials encouraging companies to let employees work from home during the solar eclipse on April 8th as metroplex traffic is expected to surge. While some isolated fuel outages are certainly possible if people start panic buying gasoline they don’t need, there’s no reason to expect any widespread impact from the demand spike.

Today’s interesting read: Why AI requires a staggering amount of electricity and may create supply competition for EVs that will end up benefitting fossil fuels.

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