Another Strong Start For Refined Product Prices As Another Round Of 7 Year Highs Are Being Set Across The Petroleum Complex

Market TalkThursday, Jan 27 2022
Pivotal Week For Price Action

It’s another strong start for refined product prices as another round of 7 year highs are being set across the petroleum complex this morning. Supply concerns seem to continue to outweigh nervous equity markets, even after the FED made it clear that the free money party is coming to an end.   

Diesel prices are once again leading the charge, trading up nearly a nickel on the day, making a run at the $2.80 mark just 3 days after they traded down to $2.60. This $2.80 range could prove to be a significant technical barrier as it was a support layer for months back in 2014, and when it finally broke prices collapsed in a hurry.  Old support often becomes new resistance on the charts, but if it’s treated as nothing more than a yield sign as most resistance has lately, then a run at $3 seems inevitable as the supply crunch continues.

The DOE’s weekly report continues to encourage the rampant buying in diesel futures, with days of supply down to 25, a number that’s more fitting of a major supply disruption. While racks across most of the country have recovered from the historically week levels in the front half of January, there’s no sign of any major supply issues in US physical markets. 

Gasoline prices have joined in on the fun, finally reaching new 7 year highs even though the prompt futures contract is still a winter spec. This recent surge, well ahead of the normal spring rally, leaves a run at the $3 mark a possibility for summer gasoline grades as well, even though fundamentals in the US also suggest that this market may be outkicking its coverage.

The FED did not raise rates Wednesday, as was widely expected, but equities reacted harshly to the FOMC Chair’s news conference in which he made it clear that they were preparing to end the money printing and raise rates throughout the year. This was a harsh reminder that the current chair is one of only 2 in the past 40 years that did not come from the academic world, and seems to take inflation more seriously than his predecessors. Already fed fund futures are showing a higher probability of 4 or more rate hikes this year than they did yesterday morning.

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

Market Talk Update 1.27.22

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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.