After A Sizeable Selloff Tuesday, Energy Futures Are Rallying Once Again

Market TalkWednesday, Apr 6 2022
Pivotal Week For Price Action

After a sizeable selloff Tuesday, energy futures are rallying once again, following the daily price teeter totter of Russian sanctions restricting supply vs COVID Lockdowns restricting demand, with the supply concerns given an edge most days. A new wrinkle this morning that may be nothing, or could end up as the next excuse for prices to rally, Gazprom’s website was taken down by an apparent hack this morning, which could end up (either directly or indirectly) restricting natural gas flows to Europe. 

The US dollar reached a 2 year high Tuesday as the FED continues to signal a strong stance to combat inflation.  Most years the dollar has a negative correlation with commodity prices as a stronger dollar makes oil and other contracts relatively more expensive for international buyers. The past year however has seen the opposite as the flight to safety and anti-inflation influences are caused by many of the same challenges that are pushing commodity prices higher. 

A couple of noteworthy items on the HO (ULSD) futures chart this week. 

First, the 25 cent gap on the daily chart left behind by the expiring April contract (thanks to the extreme backwardation giving most traders heartburn the past two months) took less than 3 days to be filled.  Second, there’s a large symmetrical triangle pattern forming on the charts, that favors another run at $4 diesel later in April if the theory that those patterns will lead to a break out in the same trend direction they started in proves true. 

The API reported small changes in US fuel inventories last week, with crude stocks up about 1 million barrels, diesel up about ½ million, and gasoline stocks down about ½ million. The DOE’s report is due out at its normal time. Items to watch this week are PADD 1 inventories to see if there may be a change in the extreme backwardation in ULSD futures (or an end to the insanity of $7 Jet fuel prices) and the import/export flows as the world continues to try and adjust to the missing Russian cargoes.

An EIA note this morning highlighted the growing demand for ethane, which is outpacing the growth of all other petroleum products in the US. That note is a good reminder of how the “other” uses of petroleum products, like clothing production, continue to increase since many still don’t realize the connection to the fossil fuels they want to do away with that are much more visible in transportation fuels.

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Market Talk Update 4.6.22

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Energy Markets Trading Quietly In The Red As Ethanol Prices Rally To Five-Month High

Energy markets are trading quietly in the red to start Wednesday’s session after a healthy bounce Tuesday afternoon suggested the Israel-Iran-linked liquidation had finally run its course.

There are reports of more Ukrainian strikes on Russian energy assets overnight, but the sources are sketchy so far, and the market doesn’t seem to be reacting as if this is legitimate news.

Ethanol prices have rallied to a 5-month high this week as corn and other grain prices have rallied after the latest crop progress update highlighted risks to farmers this year, lower grain export expectations from Ukraine, and the approval of E15 blends this summer despite the fact it pollutes more. The rally in grain and renewables prices has also helped RIN values find a bid after it looked like they were about to test their 4-year lows last week.

The API reported small changes in refined product inventories last week, with gasoline stocks down about 600,000, while distillates were up 724,000. Crude oil inventories increased by 3.2 million barrels according to the industry-group estimates. The DOE’s weekly report is due out at its normal time this morning.

Total reported another upset at its Port Arthur refinery that’s been a frequent flier on the TCEQ alerts since the January deep freeze knocked it offline and damaged multiple operating units. This latest upset seems minor as the un-named unit impacted was returned to normal operations in under an hour. Gulf Coast basis markets have shrugged off most reports of refinery upsets this year as the region remains well supplied, and it’s unlikely we’ll see any impact from this news.

California conversely reacted in a big way to reports of an upset at Chevron’s El Segundo refinery outside of LA, with CARBOB basis values jumping by more than a dime. Energy News Today continued to show its value by reporting the upset before the flaring notice was even reported to area regulators, proving once again it’s ahead of the curve on refinery-related events. Another industry news outlet meanwhile struggled just to remember where the country’s largest diesel seller is located.

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

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Market TalkTuesday, Apr 23 2024

The Struggle For Renewable Producers Continues As A Rapid Influx Of Supply And Crashing Credit Prices Make Biodiesel

The sigh of relief selloff continues in energy markets Tuesday morning, with gasoline prices now down more than 20 cents in 7 sessions, while diesel prices have dropped 26 cents in the past 12. Crude oil prices are within a few pennies of reaching a 1 month low as a lack of headlines from the world’s hot spots allows some reflection into the state of the world’s spare capacity for both oil and refined products.

Gasoline prices are trading near a 6-week low this morning, but still need to fall about another nickel in order to break the weekly trendline that pushed prices steadily higher since December. If that trend breaks, it will be safer to say that we saw the end of the spring gasoline rally on April 12th for the 2nd year in a row. Last year RBOB futures peaked on April 12 at $2.8943 and bottomed out on May 4th at $2.2500. The high (at this point) for this year was set on April 12th at $2.8516, and the low overnight was $2.6454.

It’s not just energy commodities that are seeing an unwind of the “flight to safety” trade: Gold prices had their biggest selloff in 2 years Monday and continue to point lower today. Just how much money poured into commodities in the weeks leading up to the direct confrontation between Israel and Iran is unclear, but we have seen in year’s past that these unwind-events can create a snowball effect as traders can be forced to sell to cover their margin calls.

Supply > Demand: The EIA this morning highlighted the record setting demand for natural gas in the US last year, which was not nearly enough to offset the glut of supply that forced prices to a record low in February. A shortage of natural gas in Europe was a key driver of the chaotic markets that smashed just about every record in 2022, and an excess of natural gas supply in Europe and the US this year is acting as a buffer, particularly on diesel prices.

The struggle for renewable producers continues as a rapid influx of supply and crashing credit prices make Biodiesel, RD and SAF unprofitable for many. In addition to the plant closures announced in the past 6 months, Vertex Energy reported Monday it’s operating its Renewable Diesel facility in Mobile AL at just 50% of capacity in Q1. The truly scary part for many is that the $1/gallon Blender's tax credit ends this year and is being replaced by the “Clean” Fuel production credit that forces producers to prove their emissions reductions in order to qualify for an increased subsidy. It’s impossible to say at this point how much the net reduction will be for domestic producers, but importers will get nothing, and at current CI values, many biodiesel producers may see their “blend credit” cut by more than half.

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