Challenges Coming This Winter

Market TalkTuesday, Dec 15 2020
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Energy futures continue to hold near 9-month highs in spite of more weak fundamental data as the market seems to continue to care more about the chance of economic recovery 6-12 months down the road, and less about the challenges to be overcome this winter. 

There is some doubt creeping in to the market, as we saw early gains in Monday’s session wiped out mid-day, which could be a sign that the bulls have outkicked their coverage with a 40% price rally when demand was on the decline. Whether or not prices can punch through last Thursday’s highs this week, which should spark another technical rally, should determine if we end the year in rally mode, or with a downward correction.

OPEC’s monthly oil market report revised its demand estimates slightly lower for 2020 and 2021, as the U.S. & Europe saw weaker than expected fuel consumption, offset largely by better than predicted demand in China and India. The report also highlighted the recovery in diesel margins for gulf coast refiners in recent weeks as inventories have drawn down and production has slowed, whereas gasoline margins continue to struggle in most regions. The cartel’s output rose by more than 700mb/day during November, almost all of which was due to Libya’s rapid resurgence, adding more than 1 million barrels/day of output in the past 2 months since a truce agreement allowed production to resume. 

The IEA’s monthly report also had a small downward revision in its global oil demand forecasts from last month’s report, largely due to weak jet/kerosene demand.  The report also highlighted the change in forward curves for oil from contango to backwardation due to stronger Asian demand and OPEC’s output cuts, which won’t help refiners that are expected to face a long winter. 

A few interesting refinery-related headlines this week:

The refinery formerly known as Hovensa sold its first products in the past week after nearly a year delay in startup. 

Shell completed the permanent shutdown of its Convent LA refinery.  

Exxon and P66 both outlined their intentions to improve on environmental sustainability.  Exxon’s GHG reductions are focused on lowering methane flaring and other upstream avenues, while P66 laid out its reduced spending plan including the conversion of its Rodeo, CA refinery to renewable production in 2024.

Last, Marathon is starting a new program to deter birds from its Robinson, IL facility (you’ll need a subscription to access that article).

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

TACenergy MarketTalk 121520

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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.