Chinese Power Shortage Partially Blamed For Refinery Output Dropping

Market TalkMonday, Oct 18 2021
Pivotal Week For Price Action

There’s a saying that market-based prices don’t go straight up, but if you just looked at the chart of energy prices over the past several weeks, you might think otherwise. The steady march higher continues this morning as the world remains without a short term solution to the energy supply crunch, and the big 3 NYMEX contracts all reached fresh 7 year highs again overnight, with refined products up 45 cents in the past month, and more than $2/gallon over the past 18 months.  

While the bulls clearly have control of this market for a time being, there’s also a saying that energy prices like to take the stairs up and the elevator down, so it would not be surprising to see a big price drop when the upward momentum finally wanes. 

(Not) adding fuel to the fire:  The Chinese power shortage was partially blamed for refinery output dropping to a 15 month low, showing how a lack of one fuel can lead to less production of another.  It’s not a completely fair comparison because the country’s quota system on oil imports is also playing a big role, but it is indicative of the challenges faced in the near term as the world tries to get back to normal. 

It’s not just fossil fuels that are seeing big rallies. Ethanol prices have been surging alongside gasoline, with spot prices in the New York harbor surpassing the $3 mark last week. Note the unusually large spread between Chicago and New York ethanol prices in the chart below as a sign of the ongoing logistical challenges for delivering fuel via rail and truck around the country.

Not buying it? It wasn’t too surprising to see money managers continue jumping on the petroleum bandwagon last week, adding to their net length in WTI and ULSD contracts. Brent crude meanwhile saw a 9% decrease in the bets on higher prices held by large speculators, which suggests that some of the big money bettors think this rally is getting a overextended.  RBOB contracts saw a small reduction as new shorts were added, which seasonally looks like a solid bet as gasoline demand is heading towards the winter doldrums.

Baker Hughes reported 12 more oil rigs were put to work last week, the largest weekly increase in 6 months, as the race to increase production at these lofty levels accelerates. Half of the additional rigs put to work last week were in the “other” basin category, suggesting that smaller operators are outpacing the bigger operators in the major US shale plays.

Today’s interesting read:  This WSJ article taking a deeper look at the energy supply crunch and the impacts on both fossil fuels and renewables.

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

Market Talk Update 10.18.21

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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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Market TalkTuesday, Mar 26 2024

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.