Coronavirus Fallout Continues

Market TalkMonday, Mar 16 2020
Roller-Coaster Continues With Oil Price War

Another day, another 20 cent drop for gasoline prices as the highly unusual becomes commonplace while the world deals with the coronavirus fallout.

Fear is ruling the trading day after an optimistic Friday finish, and in spite of the Fed announcing a 100 point cut in interest rates, along with other liquidity injections, some coordinated with other central banks, and assurances from the government that they would be taking action to limit the economic harm done by the attempts to limit the outbreak.

RBOB gasoline futures reached an all-time low (the contract started trading in 2005) overnight, trading at $.6778/gallon, nearly 11 cents below the previous low record set in the panic of 2008.

While the panic continues in futures markets, the physical reality is much different with numerous regional markets around the US facing tight supplies as a combination of heavy refinery maintenance, RVP transition, and in some cases a spike in demand as people prepare to self-quarantine. The concern remains that the short term shortage will turn to long-term excess if drivers stay off the road in the coming weeks.

So far the fear has been primarily focused on demand, but after a worker at the largest refinery on the West Coast tested positive for the disease, doubts about supply reliability cannot be ignored. A Reuters article highlights the steps being taken by major oil companies to continue operating through the crisis.

Money managers seem to be taking the energy price meltdown in stride, with relatively minor changes witnessed in ULSD, RBOB and WTI contracts last week, while Brent saw some heavier liquidation.

Baker Hughes reported an increase of one oil rig working in the U.S. last week. While the decision to put that rig to work was likely made months ago, it does look particularly optimistic at this point.

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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.

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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.