An Uncomfortable Calm Is Gripping Global Energy Markets After Some Wild Back And Forth Action

Market TalkWednesday, Feb 23 2022
Pivotal Week For Price Action

An uncomfortable calm is gripping global energy markets after some wild back and forth action the past two days. Crude oil prices have eased by $4/barrel and Refined products have pulled back 10 cents from their Monday night highs in the wake of the Russian invasion of Ukraine, and are starting Wednesday’s session on a quiet note. Even the notoriously volatile natural gas prices are acting relatively docile despite the huge potential fallout from the economic cold war.

There’s a noteworthy divergence emerging between near bullish fundamentals and technical that are looking suddenly bearish. On the fundamental side, demand estimates continue to increase as COVID restrictions rapidly ease, while supply increases continue to lag behind the estimates for 2022, even before factoring in the potential disruptions from Russia. Technical studies meanwhile are starting to look top heavy after the sharp reversal Tuesday as traders appear to have once again played the buy the rumor and sell the news game with energy contracts. Diehard chartists love to say that the headlines follow the prices, not vice versa, and the price action in the next few days will provide an interesting case study into that argument.

It’s not just crude oil that’s tight. Prices for soybeans and its oil have been moving sharply higher again in recent weeks as demand for both food and fuel from the beans increase, and supplies from South America are struggling pushing up the price for everything from tofu to D4 RINs. China announced it would release soybeans and edible oils from its strategic reserves to help minimize the increase in prices.

4th quarter earnings releases from refiners are showing some consistent themes this week. Big improvements in demand, good but not great margins, and challenges with both severe weather and labor impacting operations. 

Speaking of refinery operations: Traders didn’t seem too concerned about the explosion and fire that injured 5 workers at one of the Country’s largest refineries Monday, with US Gulf Coast basis values barely flinching after the long weekend. That plant was undergoing maintenance already so output may not be impacted, and local terminal operations are not showing signs of any product tightness following the fire.

The IEA released its global Methane tracker this week, once again shouting from the rooftops about the need to reduce these emissions and some of the “cost effective” ways to accomplish that goal. One interesting note from the report: Turkmenistan accounted for nearly 1/3 of the major emissions events recorded globally last year. Perhaps Russia will invade them next to help the world combat climate change.

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

Market Talk Update 2.23.22

News & Views

View All
Pivotal Week For Price Action
Market TalkThursday, Mar 28 2024

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.

Pivotal Week For Price Action
Market TalkWednesday, Mar 27 2024

Week 12 - US DOE Inventory Recap

Pivotal Week For Price Action
Market TalkWednesday, Mar 27 2024

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.