After Another Big Rally Wednesday, Energy Prices Are Seeing A Quiet Start To Trading Thursday

Market TalkThursday, Mar 24 2022
Pivotal Week For Price Action

After another big rally Wednesday, energy prices are seeing a quiet start to trading Thursday, with little news so far to give us the expected 20 cent swings we’ve become accustomed to in March. There are multiple summits taking place in Europe this week that will decide the next steps in the efforts to end the war in Ukraine, and the (relative) lack of price movement so far today seems to be the market taking a wait and see approach to those meetings.

Yesterday’s DOE report continued to provide evidence that there simply is not a good short term solution to the global supply crunch, but also that the US is in a much better position than most other countries these days.

Gulf Coast refiners are doing their part to make up for a lack of refined products in other markets, increasing run rates for a 5th straight week, and surpassing 8.7 million barrels/day for just the third time since the COVID lockdowns forced plants to reduce rates, and helped drive the biggest decrease in refining capacity in 40 years. How many would like to ask for a do-over on shuttering those plants in light of recent events? The other notable phenomenon is that PADD 3 run rates surpassed 55% of total US throughput rates as the Gulf Coast states continue to grab market share from those that have declared war on their refiners and are now paying a huge price as a result.   

Speaking of which, take a look at the huge drop in diesel imports over the past two weeks in the charts below to see a good graphical representation of the scramble for importers to find distillates on cargo ships to replace barrels coming from Russia, regardless of their original destination. The US still produces 10-15% more diesel than it consumes every day, but domestic markets have to compete with international buyers in the coastal markets, and for the Gulf Coast refiners, it often is more cost effective to send diesel to parts of Europe and South America than it is to some parts of the US thanks to the Jones Act and CARB regulations. 

Damage assessments are underway at the Black Sea Oil port that transports roughly 1% of global supply after Russian officials claimed it was shuttered after a storm. It’s hard to know (even before they invaded Ukraine) what’s real and what’s propaganda, but there are signs that the pipeline feeding the port is still operational.

An EIA note this morning predicts that US renewable diesel production will surpass biodiesel production this year, as new plants come online, and the feedstock wars are won by RD as it is not only a drop-in replacement for ULSD, but also commands more environmental subsidies. The report also shows that production growth for both RD and Bio is expected to slow dramatically after the race to convert during the aforementioned COVID refinery shuttering, and the combined total of the two products will only reach 8% of total distillate output in 2050, vs 6% today.  So much for Net Zero.

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

Market Talk Update 3.24.22

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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.