Energy Futures Are Back On The Move Higher To Start The Week
Energy futures are back on the move higher to start the week, after ending on a softer note Friday in what appeared to be a round of profit taking after a strong rally. The charts continue to point higher, although another big pullback is likely along the way as several short term indicators remain in overbought territory. The saber rattling on either side or Ukraine, volatile stock markets, the backside of the Omicron hill, and another attack on the UAE are all making headlines to start the week, and could each take their turn getting credit for whatever move the market takes that day. It does seem that a major selloff will be challenging until the Ukraine situation clarifies in one form or another, and as long as that’s lingering a spike to $100 for oil and $3 for products cannot be ruled out.
The East Coast is digging out from the weekend storm that dumped 2 feet of snow in places, but terminal disruptions appear to have been minimal and power outages not as widespread as feared. For those that can’t get enough of these events, you’re in luck as another major storm is set to sweep across the US in the back half of the week, which may bring the first big snow and ice event back to Texas since last year’s Polar Plunge crippled the state.
It’s the last trading day for February RBOB and HO futures, so make sure you’re looking to the March RBH/HOH contracts for direction if your market hasn’t already shifted. The Feb ULSD (HO) contract has been particularly volatile lately, rallying 26 cents last week, then dropping by a dime from its high on Friday, before moving higher again today. With just a few hours left for that contract, don’t be surprised if there are more fireworks today.
Money managers looked like they were taking some profits off the table in Crude oil and gasoline contracts last week, reducing their net length slightly as of last Tuesday after weeks of increases. The large speculative trade category continued to add length in diesel however, with both ULSD and Gasoil contracts seeing new longs added during the week, and ULSD saw a fair amount of short covering, which may help explain part of the recent spike in prices.
Baker Hughes reported 4 more oil rigs were put to work last week in the US, resuming the steady increase after last week saw the first net decline in 3 months. The Permian basin, which accounts for more than half of the total US rig count, has held flat on its total count of 293 rigs for the past month, even as the EIA predicts that the basin will set new production records this year as efficiency gains are expected to help offset the headwinds of a tight labor market and the supply-chain bottlenecks most people are tired of hearing about by now.
Click here to download a PDF of today's TACenergy Market Talk.
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Week 16 - US DOE Inventory Recap
Energy Markets Trading Quietly In The Red As Ethanol Prices Rally To Five-Month High
Energy markets are trading quietly in the red to start Wednesday’s session after a healthy bounce Tuesday afternoon suggested the Israel-Iran-linked liquidation had finally run its course.
There are reports of more Ukrainian strikes on Russian energy assets overnight, but the sources are sketchy so far, and the market doesn’t seem to be reacting as if this is legitimate news.
Ethanol prices have rallied to a 5-month high this week as corn and other grain prices have rallied after the latest crop progress update highlighted risks to farmers this year, lower grain export expectations from Ukraine, and the approval of E15 blends this summer despite the fact it pollutes more. The rally in grain and renewables prices has also helped RIN values find a bid after it looked like they were about to test their 4-year lows last week.
The API reported small changes in refined product inventories last week, with gasoline stocks down about 600,000, while distillates were up 724,000. Crude oil inventories increased by 3.2 million barrels according to the industry-group estimates. The DOE’s weekly report is due out at its normal time this morning.
Total reported another upset at its Port Arthur refinery that’s been a frequent flier on the TCEQ alerts since the January deep freeze knocked it offline and damaged multiple operating units. This latest upset seems minor as the un-named unit impacted was returned to normal operations in under an hour. Gulf Coast basis markets have shrugged off most reports of refinery upsets this year as the region remains well supplied, and it’s unlikely we’ll see any impact from this news.
California conversely reacted in a big way to reports of an upset at Chevron’s El Segundo refinery outside of LA, with CARBOB basis values jumping by more than a dime. Energy News Today continued to show its value by reporting the upset before the flaring notice was even reported to area regulators, proving once again it’s ahead of the curve on refinery-related events. Another industry news outlet meanwhile struggled just to remember where the country’s largest diesel seller is located.
Click here to download a PDF of today's TACenergy Market Talk
The Struggle For Renewable Producers Continues As A Rapid Influx Of Supply And Crashing Credit Prices Make Biodiesel
The sigh of relief selloff continues in energy markets Tuesday morning, with gasoline prices now down more than 20 cents in 7 sessions, while diesel prices have dropped 26 cents in the past 12. Crude oil prices are within a few pennies of reaching a 1 month low as a lack of headlines from the world’s hot spots allows some reflection into the state of the world’s spare capacity for both oil and refined products.
Gasoline prices are trading near a 6-week low this morning, but still need to fall about another nickel in order to break the weekly trendline that pushed prices steadily higher since December. If that trend breaks, it will be safer to say that we saw the end of the spring gasoline rally on April 12th for the 2nd year in a row. Last year RBOB futures peaked on April 12 at $2.8943 and bottomed out on May 4th at $2.2500. The high (at this point) for this year was set on April 12th at $2.8516, and the low overnight was $2.6454.
It’s not just energy commodities that are seeing an unwind of the “flight to safety” trade: Gold prices had their biggest selloff in 2 years Monday and continue to point lower today. Just how much money poured into commodities in the weeks leading up to the direct confrontation between Israel and Iran is unclear, but we have seen in year’s past that these unwind-events can create a snowball effect as traders can be forced to sell to cover their margin calls.
Supply > Demand: The EIA this morning highlighted the record setting demand for natural gas in the US last year, which was not nearly enough to offset the glut of supply that forced prices to a record low in February. A shortage of natural gas in Europe was a key driver of the chaotic markets that smashed just about every record in 2022, and an excess of natural gas supply in Europe and the US this year is acting as a buffer, particularly on diesel prices.
The struggle for renewable producers continues as a rapid influx of supply and crashing credit prices make Biodiesel, RD and SAF unprofitable for many. In addition to the plant closures announced in the past 6 months, Vertex Energy reported Monday it’s operating its Renewable Diesel facility in Mobile AL at just 50% of capacity in Q1. The truly scary part for many is that the $1/gallon Blender's tax credit ends this year and is being replaced by the “Clean” Fuel production credit that forces producers to prove their emissions reductions in order to qualify for an increased subsidy. It’s impossible to say at this point how much the net reduction will be for domestic producers, but importers will get nothing, and at current CI values, many biodiesel producers may see their “blend credit” cut by more than half.
Click here to download a PDF of today's TACenergy Market Talk.