Another Day Of Heavy Selling In Energy Contracts

Market TalkMonday, Aug 9 2021
Pivotal Week For Price Action

It’s another day of heavy selling in energy contracts, with refined products now down 17 cents or more so far in August. As has been the case for most of the past 18 months, demand fears from the latest rise in COVID cases is taking much of the blame for the latest wave of selling. The charts meanwhile had been hinting for some time that a substantial pullback may be coming after a 9 month rally finally appeared to have stalled out.  

The big test this week looks to be the July lows which WTI has already broken below this morning, putting the contract at risk of a drop to $62 in short order. Refined products still have some work to do to get close to those lows ($1.96 for ULSD and $2.07 for RBOB) which could create a bit of a technical tug of war between crude and its products.

Speaking of which, money managers (aka hedge funds) continue to struggle with timing on refined product trades. The latest CFTC COT report showed funds increasing their net length (bets on higher prices) last week, just in time for the latest round of heavy selling. Distillates in particular look troublesome for the large speculators, as the length held in HO contracts reached a 3 year high last week, and may add to the selling pressure if that length is forced to liquidate by margin calls. The performance in crude oil bets has been better, with WTI net length reaching a 9 month low ahead of this sell-off.

Baker Hughes reported a net increase of 2 oil rigs operating in the US last week, offsetting the drop we saw in the previous week. Don’t expect this stagnation in drilling activity to cause a drop in oil production however, as a Rystad energy report last week detailed that drilled by uncompleted (DUC) wells have dropped to an 8 year low as producers are choosing to work through their backlog before focusing on drilling new wells.

The recent spike in West Coast basis values should be drawing imports of refined products to Northern California and PNW ports, but they may soon find competition from Mexican buyers if a weekend fire at the country’s largest refinery disrupts operations. The country has been walking back its plans to open up its fuel market, trying to give PEMEX back control of the nation’s fuel supply, and events like this fire show that ultimately the country will need outside help.

storm system moving towards the Caribbean is given 70% odds of being named this week, with a good chance that it will head towards Florida, which would keep it east of the oil production and refinery centers in the Gulf of Mexico. A 2nd system right behind the first is given 20% odds of development, and we’ve reached the time of year where it will be rare not to have some system we’ll need to watch daily.

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

Market Update (01A) 8.9.21

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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.

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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.