Diesel Prices Look Like They May Have Lost The Tug Of War Contest This Week

Market TalkFriday, Sep 30 2022
Pivotal Week For Price Action

Diesel prices look like they may have lost the tug of war contest this week as the energy market is limping into the weekend with nickel losses for refined products. It’s been a volatile week for all sorts of markets around the world, with recession fears and central bank action weighing heavily on demand forecasts, while the Nord Stream Sabotage, numerous global refinery issues and potential OPEC cuts next week weighing on supply.  

October ULSD and RBOB futures expire today, so for the NYH and Group 3 regions that haven’t already switched to the November reference month, make sure you’re watching the HOX and RBX contracts for direction today.

California gasoline basis values for the prompt delivery cycles didn’t move Thursday as apparently no one was desperate enough to pay $2.45/gallon over November futures to get supplies, and no sellers were willing to start off the inevitable price crash by making a lower offer. Diesel prices in the state continued moving higher however with some prompt markets moving to 50 cent premiums over November futures.

Hurricane Ian devastated parts of Florida, and is now heading for Charleston as a category 1 storm, but looks like it has spared energy infrastructure so far. Terminals in Tampa and Jacksonville reopened Thursday, and while dangerous road conditions will limit fuel deliveries for a while, it really is a remarkable story that fuel supplies were able to return so quickly when Tuesday morning it appeared that Tampa may take a direct hit and those terminals could be wiped out.  

The Port of Charleston is now in the path of Ian, but the current models show the storm’s eye moving north and east of those terminals, which should help limit the damage just as we saw in Tampa since the rotation of the storm will push water out and not in, which may prove critical since landfall is scheduled right around high tide. Some terminals in the region have reduced allocations ahead of the latest landfall, but since most of the state is supplied from inland sources via Colonial pipeline anyway, the odds of a lasting disruption to supplies is low even if there is damage to the waterborne terminals.  

There is another potential storm system moving off the coast of Africa today that’s given 50% odds of developing next week by the NHC. The location of that system would give it a chance to make it to the US if it develops. 

Exxon sent a letter to the White House trying to explain why limiting fuel exports won’t help increase inventories along the East Coast when the pipelines are already full and Jones Act qualified tankers are maxed out.   

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Market Talk Update 09.30.2022

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Pivotal Week For Price Action
Market TalkThursday, Dec 1 2022

December Trading Is Kicking Off With Modest Gains For Energy Contracts

December trading is kicking off with modest gains for energy contracts after a strong finish to November helped the complex avoid a technical breakdown.  

Equity markets saw another big rally Wednesday after the FED chair suggested that smaller rate hikes were coming. The correlation between energy and equity markets remains weak, so it doesn’t seem like that’s having much influence on daily pricing, but it certainly doesn’t hurt the case for a recovery rally.  New reports that China may ease some lockdowns in the wake of last weekend’s protests is also getting some credit for the strength in prices after they reached 11 month lows on Monday.

The DOE’s weekly report had something for everyone with crude oil stocks showing some bullish figures while refined product supplies got some much-needed relief.

US Crude oil inventories saw a huge drop of more than 12 million barrels last week thanks to a surge in exports to the 3rd highest level on record, a drop in imports, and the SPR sales that have been supplementing commercial supplies for the past 6 months wind down. The market reaction was fairly muted to the big headline drop, which is probably due to the inconsistent nature of the import/export flows, which are likely to reverse course next week. The lack of SPR injections will be a key figure to watch through the winter, particularly as the Russian embargo starts next week.

Diesel inventories increases across all 5 PADDs last week, as demand dipped again and imports ticked higher. Diesel exports remain above average, and are expected to continue that pace in the near term as European and Latin American buyers continue to be short. Read this note for why in the long term more of those supplies will probably come from China or Kuwait

US refiners continue to run all-out, with total throughput last week reaching its highest level since the start of the pandemic, even though we’ve lost more than 600,000 barrels/day of capacity since then. Those high run rates at a time of soft demand help explain why we’re seeing big negative basis values at the refining hubs around the country and if the pipeline and vessel outlets can’t keep pace to move that product elsewhere we may see those refiners forced to cut back due to lack of storage options.

The EPA was required by court order to submit its plans for the renewable fuel standard by November 16, and then came to an agreement to release them on November 30, and then apparently decided to meet that deadline, but not release the plan to the public. If you think this is ridiculous, you’re not alone, but keep in mind this is the same agency that regularly missed the statutory deadline by more than a year previously, so it’s also not too surprising. This is also the law that required 16 billion gallons/year of cellulosic biofuels be blended by 2022 when it was put into place 15 years ago, only to run into a wall of physical reality where the country is still unable to produce even 1 billion gallons/year of that fuel. 

There are still expectations that the public may get to see the proposed rulings later this week, and reports that renewable electricity generation will be added to the mix for the first time ever starting next year. RIN prices were pulling back from the 18 month highs they reached leading up to the non-announcement as it seems the addition of “eRINs” will add new RIN supply, and potentially offset the increased biofuel mandates.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.

Pivotal Week For Price Action
Market TalkWednesday, Nov 30 2022

Energy Markets Are Seeing A Strong Rally For A 2nd Day

Energy markets are seeing a strong rally for a 2nd day as uncertainty about the upcoming OPEC meeting and about the looming Russian oil embargo seem to have markets focusing on supply fears again, after weeks of demand-fears driving prices lower. Diesel prices are up more than 22 cents from yesterday’s low trade, while gasoline prices are up 12. The bounce puts the complex back in neutral technical territory after surviving a trip to the edge of a breakdown that could have sent prices sharply lower. 

Concerns about a pending recession continue to plague equity markets as the US Treasury yield curve is inverted to a degree we’ve only seen a couple of times in the past 25 years. As the chart below shows, these inversions have been a good indicator of a pending economic slowdown. Energy markets seem to already have gotten that selling out of their system in the short term, but this could once again become a factor if this latest rally runs out of steam. 

The European Union still can’t unite on a price cap agreement for Russian oil, less than a week before an embargo on Russian oil is set to begin. Both WTI and Brent crude have slipped into a Contango price curve near term as current supplies are proving ample as traders have had months to prepare for this change, and demand has softened globally. 

Meanwhile, Italian officials continue to race to find a way to keep their Sicilian refinery in operation after the embargo begins, asking the US to provide banks assurance that they won’t face fines for breaching sanctions given the Russian-owned status of that plant. Since the US is a consistent buyer of products from that facility, and the East Coast continues to struggle to find enough supply, perhaps it’s an offer they can’t refuse. 

OPEC and friends have decided to hold their upcoming meeting virtually, which some are taking as a sign that they will roll over their output cut agreement from October. 

The tornado outbreak in the southern US looks like it stayed far enough away from the Gulf Coast to spare the refineries in the area. The Alon refinery in Big Spring TX reported an operational issue that lasted more than 16 hours Monday, that ENT is reporting could end up causing extended downtime at that facility. While that plant is far from the Gulf Coast trading hub, downtime could add to the supply challenges to West Texas and surrounding markets.

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

Pivotal Week For Price Action
Market TalkWednesday, Nov 30 2022

Week 48 - US DOE Inventory Recap