Energy Complex Trying To Find A Floor As Gasoline Prices Lead Attempted Rally

Market TalkFriday, Sep 2 2022
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The energy complex is trying to find a floor this morning, with gasoline prices leading an attempted rally after a wave of heavy selling swept the complex earlier in the week.  Diesel prices were resisting the pull higher overnight, after having already dropped 45 cents this week, but have turned slightly positive following the August jobs report.  

California gasoline basis values continued to surge Thursday, as a refinery hiccup turned one of the market’s largest sellers into a buyer.   Regular CARBOB gasoline values in the LA and San Francisco spot markets are trading 85-95 cents over the October RBOB contract, with implied cash values ranging from $3.30-$3.40 this morning, compared to USGC values around $2.38/gallon, which are translating to retail prices in the south dropping below $3/gallon this week.

Meanwhile,  California regulators asked residents not to charge electric vehicles yesterday, one day after announcing an upcoming ban on new gasoline power vehicles.  Maybe they just need higher taxes. 

While West Coast values are surging, East Coast prices have come back to reality, with the spread between NYH and USGC prices reaching a 6 week low yesterday, which has nearly wiped out the premium to ship barrels along the Colonial pipeline.  That correction should help alleviate some of the product tightness across the South East and Florida markets as shippers no longer have the incentive to shift their barrels further north.

G7 leaders are expected to propose a plan to cap prices for Russian oil purchases.  Whatever is announced is likely to have minimal impact on markets however as the Russians are proving capable of circumventing restrictions already imposed by the G7 countries, and hitting a record high export volume in August despite sanctions.

The US added 315,000 jobs in August according to the payrolls report estimate released this morning, while the agency lowered its estimates for July down by 105,000 from 398,000 to 293,000.   The headline unemployment rate ticked up to 3.7% even though jobs increased, while the total unemployed (U-6) figure jumped from 6.7%-7%.  Stocks and fuel prices ticked modestly higher following the report as it seems to be good enough to convince traders we’re not yet in a recession, without being so good that it might encourage the FED to be even more harsh to the free money junkies.

Yesterday the BLS reported that US labor productivity decreased 4.1 percent in the 2nd quarter of 2022 as hours worked increased nearly 3% but actual output declined by 1.4%.  Labor costs increased by 10.2% in the quarter, which is the highest increase in 40 years.  

Tropical Storm Danielle formed in the North Atlantic yesterday and is expected to become a hurricane today.  The good news is that forecasts suggest this storm won’t be a threat to any land over the next week, although it could disrupt shipping traffic between the US and Europe, which has already been stressed by the fallout of Russia’s war on Ukraine.  While the US has been fortunate so far this Hurricane season, South Korea is expected to be slammed by the most powerful storm in that country’s history next week.  While that storm may not have a great impact on US energy markets, it could further complicate the global supply chain challenges.

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

Market Talk Update 09-02-22

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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.