Debate Over Economic Restarts Face Off Against Fears

Market TalkWednesday, May 13 2020
Traders Torn As Opposing Trend Lines Converge

The holding pattern continues for oil prices this week as a debate over signs of economic restarts, both domestically and abroad, face off against fears of a second-wave of the coronavirus. WTI and ULSD futures are both holding in their recent trading range, while RBOB futures are breaking their upward trend, and threatening a larger selloff.

We’re in the data-deluge week with the EIA, OPEC and IEA all releasing their monthly reports, in addition to the weekly API and DOE data. The first three of those reports have been released already and show a common theme of slowly improving fuel demand, spread unevenly across the various refined products.

OPEC’s oil output rose by 1.8 million barrels/day in April, as Saudi Arabia made good on its threat to flood the global market right as the world was experiencing the largest demand drop in history. That story should flip in May as the price war has ended, and country’s slowly reopen for business.

The API was reported to estimate that U.S. oil inventories built by 7.5 million barrels last week, which was larger than most published forecasts.

The industry group also estimated another gasoline inventory draw-down of 1.9 million barrels, while distillates were up by 4.7 million barrels. You’d be forgiven if you thought the API showed the opposite build/draw in inventories based on the price reaction overnight with RBOB down two cents and ULSD up one, which suggests the early action may have more to do with the charts after RBOB’s trend line broke Tuesday.

Wheels off the charts: The EIA’s monthly short term energy outlook showed how the wild action of the past two months has broken the mold. The front page of that report typically shows a price forecast for WTI, including 95 percent confidence intervals for those projections. This month the EIA is “unable to construct” those intervals because of “data issues” surrounding the extreme volatility and lack of liquidity in options markets it created. In other words, given the two standard deviation from the mean calculation of a confidence interval, and prices doing what they’ve done, the price estimate is around 30 dollars for WTI, but the confidence would be somewhere in the range of plus or minus $50/barrel from that mark.

The STEO was able to estimate that global energy consumption will start outpacing production in the back half of this year, and that energy related CO2 emissions would fall by 11 percent, the largest drop in over 70 years of data.

The DOE’s weekly report is due out at its regular time this morning. Watch the refinery yield and export figures to see how refineries are reacting to their undesirable transition from an excess of gasoline inventory to a glut of diesel. While it may take a few weeks for plants to shift gears, and longer still to show up in the data, the increased complexity and flexibility of many U.S. refineries seems to be more capable of solving the demand puzzle than ever before.

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

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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.