Bulls Temporarily Lose Control of Energy Market

Market TalkWednesday, May 19 2021
Pivotal Week For Price Action

The bulls have lost control of the energy market (temporarily at least) after failing to break through technical resistance during an early week rally. Today’s selling has a “risk off” feel to it, as it coincides with a big move lower in U.S. equities

After a strong start to Tuesday’s trade that had petroleum futures on the cusp of new multi-year highs, a sharp and sudden selloff knocked oil prices down $2/barrel and refined products 4-5 cents/gallon in just a few minutes after “reports” via Twitter - which were lost in translation - of a breakthrough in negotiations between Iran and the U.S. Those comments were later walked back and the market erased those losses later in the session in a glaring example of the volatility risk when headline reading algorithms can trade on their own. To be fair, it’s not like human traders are proving to be much more intelligent this week: confusing a furniture retailer for a cryptocurrency.

At least four different Gulf Coast refiners had to curb run rates due to the severe weather sweeping the region this week. So far cash markets shrugged off that news and supply allocations didn’t change suggesting minor impacts. There are two more days ahead of severe weather, and even if no more damage is done this time, these storms are saturating the ground ahead of hurricane season, which officially starts in less than two weeks and is forecast to be busy.

Suppliers still scrambling to resupply across the Southeast had a few nervous hours Tuesday after an announcement that Colonial Pipeline’s scheduling system was taken offline. Fortunately that situation was only caused by the upgrades being made to protect their system against future hacks (how’s that for closing the barn door after the horse has escaped?) did not impact shipments, and only lasted a few hours. Terminals across the region continue to face short term outages, but the situation continues to improve every day. 

While refined product prices have pulled back this week, RIN values continue to set new records, with D4 values trading north of the $2 mark Tuesday. That surge in values is adding a new level of pain to U.S. refiners that were just starting to recover from one of their worst years ever, as the RVO now takes nearly $10/barrel off of their gross margin.  

While the RFS subsidy for biofuels continues to trade at record highs, a new bill aiming to extend the $1/gallon biodiesel blenders tax credit subsidy for biofuels was introduced Tuesday, more than 18 months ahead of the current expiration of the BTC. That’s a novel concept given that for much of the past decade that credit was only approved retroactively.   

Meanwhile, read here about the boom in production of natural gas made from manure, thanks primarily to the subsidies paid by California’s LCFS program. Biomethane (AKA RNG) is the fastest growing category of fuel in the LCFS program, and now accounts for almost as much volume as biodiesel. That rapid increase in supply could help explain why LCFS credits are trading down on the year, while CCA credits used in the California/Quebec Cap & Trade program have been steadily moving higher. 

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

TACenergy MarketTalk 051921

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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.

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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.