Diesel Futures Are Trying To Lead Another Move Higher To Start The Week With The October ULSD Contract Up A Nickel So Far

Market TalkMonday, Sep 11 2023
Pivotal Week For Price Action

Diesel futures are trying to lead another move higher to start the week with the October ULSD contract up a nickel so far, reaching a new 8-month high at $3.3510. RBOB futures are ticking slightly higher on the day, but remain well below their Friday morning highs, while WTI is still trading modestly lower.

Hurricane Lee will be a big story all week as it slowly crawls towards the East Coast. Most models keep this storm off the coast as it moves north this week, although a landfall from New Jersey to Maine is still possible this coming weekend so it will remain front page news.  The odds of a strike on northeastern Maine look to have increased over the weekend, as have the chances that the Irving refinery in St. John NB will take a direct hit. If there’s a silver lining to the potential for that refinery to being hit by a major storm, it would be that the facility already had a turnaround planned starting this week, so the market isn’t planning on those barrels anyway. 

Money managers were piling into WTI contracts as prices hit their highest levels of the year last week, jumping on the bullish bandwagon with bets that the rally will continue and pushing net length to the highest since June 2022. The large speculators also added to their length in Brent crude, but reduced their length in products, with ULSD, RBOB and Gasoil contracts all seeing slight declines on the week. Swap dealers saw an active week with a healthy increase in net short positions in WTI, which suggests that some producers are jumping in to hedge future output at current values.

Baker Hughes reported an increase of 1 oil rig drilling in the US last week, the first weekly increase since June after reaching the lowest level since February 2022 the week prior.   Natural gas rigs declined by 1 on the week, setting a new 20 month low.

That didn’t last long: The Group 3 market’s turn in the spotlight with a trade north of $1/gallon over RBOB futures for prompt UNL lasted less than a day with values dropping sharply Friday to “only” about 40 cents over futures. West Coast markets meanwhile continue to carry hefty premiums as tight inventories remain a theme as we approach the last few weeks of summer-grade products for gasoline, and diesel stocks remain tight with resupply of RD looking scarce due to weather-related delays in the Panama Canal.

An explosion at the ADM Ethanol plant in Decatur Illinois sent several workers to the hospital overnight. That facility is listed as the largest ethanol production plant in the country at 375 million gallons/year (24mb/day) and accounts for more than 2% of total US ethanol production capacity according to the EIA’s energy atlas. It’s unclear at this point what if any impact there is on production, but reports suggest it’s the third fire in the past 6 months at the facility, and the others have not created a big stir in ethanol markets. 

Marathon’s Texas City (aka Galveston Bay) refinery had another fire last week, with reports suggesting this latest in an unfortunate string of upsets at the country’s 4th largest plant will keep an FCC unit offline for at least a week. The event was downplayed in a filing with the TCEQ Friday that only mentioned 2 hours of unplanned flaring. That story was given credit for some of the early buying in product futures Friday, but gasoline prices quickly gave back gains, suggesting the FCC downtime wasn’t seen as much of a factor longer term.

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Market Talk Update 09.11.2023

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Pivotal Week For Price Action
Market TalkTuesday, Nov 28 2023

Values For Space On Colonial’s Main Gasoline Line Continue To Drop This Week

The petroleum complex continues to search for a price floor with relatively quiet price action this week suggesting some traders are going to wait and see what OPEC and Friends can decide on at their meeting Thursday. 

Values for space on Colonial’s main gasoline line continue to drop this week, with trades below 10 cents/gallon after reaching a high north of 18-cents earlier in the month. Softer gasoline prices in New York seems to be driving the slide as the 2 regional refiners who had been down for extended maintenance both return to service. Diesel linespace values continue to hold north of 17-cents/gallon as East Coast stocks are holding at the low end of their seasonal range while Gulf Coast inventories are holding at average levels.

Reversal coming?  Yesterday we saw basis values for San Francisco spot diesel plummet to the lowest levels of the year, but then overnight the Chevron refinery in Richmond was forced to shut several units due to a power outage which could cause those differentials to quickly find a bid if the supplier is forced to become a buyer to replace that output.

Money managers continued to reduce the net length held in crude oil contracts, with both Brent and WTI seeing long liquidation and new short positions added last week. Perhaps most notable from the weekly COT report data is that funds are continuing their counter-seasonal bets on higher gasoline prices. The net length held by large speculators for RBOB is now at its highest level since Labor Day, at a time of year when prices tend to drop due to seasonal demand weakness. 

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Pivotal Week For Price Action
Market TalkMonday, Nov 27 2023

After Another Black Friday Selloff Pushed Energy Futures Sharply Lower In Last Week’s Holiday-Shortened Trading

After another Black Friday selloff pushed energy futures sharply lower in last week’s Holiday-shortened trading, we’re seeing a modest bounce this morning. Since spot markets weren’t assessed Thursday or Friday, the net change for prices since Wednesday’s settlement is still down more than 6-cents for gasoline and almost 5-cents for diesel at the moment.

OPEC members are rumored to be nearing a compromise agreement that would allow African producers a higher output quota. Disagreement over that plan was blamed on the cartel delaying its meeting by 4-days last week which contributed to the heavy selling. The bigger problem may come from Russia, who announced plans last week to increase its oil output once its voluntary cut agreement ends now that price cap mechanisms are proving to be ineffective

While an uneasy truce in Gaza held over the weekend, tensions on the Red Sea continued to escalate with the US Navy intervening to stop another hijacking and being rewarded for its efforts by having missiles fired at one of its ships.  

RIN values came under heavy selling pressure Wednesday afternoon following a court overturning the EPA’s ruling to deny small refinery hardship waivers to the RFS. Those exemptions were a big reason we saw RINs drop sharply under the previous administration, and RINs were already on due to the rapid influx of RD supply this year.

More bad news for the food to fuel lobby: the White House is reportedly stalling plans to allow E15 blending year-round after conflicting studies about ethanol’s ability to actually lower carbon emissions, and fuel prices. Spot prices for ethanol in Chicago reached a 2.5 year low just ahead of the holiday.  

Baker Hughes reported the US oil rig count held steady at 500 active rigs last week, while natural gas rigs increased by 3. 

The first of perhaps several refining casualties caused by the rapid increase in new capacity over the past two years was reported last week. Scotland’s only refinery, which has a capacity of 150mb/day is preparing to shutter in 2025.

The CFTC’s commitment of traders report was delayed due to the holiday and will be released this afternoon.

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Pivotal Week For Price Action
Market TalkWednesday, Nov 22 2023

Week 47 - US DOE Inventory Recap