Energy Futures Are Drifting Quietly Higher This Morning

Market TalkTuesday, Apr 30 2024
Pivotal Week For Price Action

Energy futures are drifting quietly higher this morning as a new round of hostage negotiations between Israel and Hamas seem to show relative promise. It seems the market is focusing on the prospect of cooler heads prevailing, rather than the pervasive rocket/drone exchanges, the latest of which took place over Israel’s northern border.

A warmer-than-expected winter depressed diesel demand and, likewise, distillate refinery margins, which has dropped to its lowest level since the beginning of 2022. The ULSD forward curve has shifted into contango (carry) over the past month as traders seek to store their diesel inventories and hope for a pickup in demand, domestic or otherwise.

The DOE announced it had continued rebuilding it’s Strategic Petroleum Reserve this month, noting the addition of 2.3 million barrels of crude so far in April. Depending on what the private sector reported for last week, Wednesday’s DOE report may put current national crude oil inventories (include those of the SPR) above the year’s previous levels, something we haven’t seen since April of 2022, two months after Ukraine war began.

The latest in the Dangote Refinery Saga: Credit stall-out, rising oil prices, and currency exchange.

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Market Talk Update 04.30.2024

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Pivotal Week For Price Action
Market TalkTuesday, May 21 2024

RBOB Gasoline Futures Are Leading The Move Lower, Dropping 9 Cents Since The High Print Set Sunday Night

Energy markets are sliding for a 2nd day, giving back most of last week’s gains as supply concerns seem to be ebbing, while sluggish demand concerns remain. Equity markets are also pulling back slightly after reaching record highs last week, giving a sense that the risk-on-rally has run out of steam.

RBOB gasoline futures are leading the move lower, dropping 9 cents since the high print set Sunday night. Adding to the bearish sentiment on gasoline prices this week are reports that despite a recent rise in refinery attacks, Russia is removing restrictions on gasoline exports through the end of June. RBOB futures are now just over a nickel away from another test of the 200 day moving average, which helped propel last week’s bounce. A break below that level opens the door to another 20+ cents of downside in the next couple of weeks. It’s hard to imagine we’ll see that slide heading into a holiday weekend that kicks off the driving season, but a slump following Memorial day is not uncommon.

In the latest sign that refiners see the future in “other” liquids besides gasoline and diesel, Phillips 66 announced it was acquiring Pinnacle Midland, a natural gas gathering and distribution firm for $550 million. P66 said the transaction will “align with long-term objectives to build out our natural gas liquids value chain.” Take a look at the Propane and Propylene export figures in tomorrow’s DOE report and you’ll see another example of how the “other” refined products are becoming the drivers of growth and profitability while the traditional refined fuels continue to stagnate.

Capitalism vs Socialism: The EIA this morning highlighted the rapid growth in oil output coming from Guyana in the past few years, a stark contrast to its neighbor who has seen oil output plummet – despite having the world’s largest oil reserves – after the country nationalized its oil projects in 2007. That divergence is threatening the latest flare up in the global oil drama, with Venezuela building up military infrastructure near the border with Guyana and threatening to annex part of the country.

RIN Values rallied north of $.50 for D4 and D6 values Monday for the first time in 6 weeks. There wasn’t a piece of news to pin the rally on as their often is with the political football known as the Renewable Fuel Standard. A week ago a federal court rejected one of several lawsuits over the RFS, keeping the 2020-2022 mandates intact. In addition there is a sense that recent cut backs and closures of renewable facilities unable to maintain profits without high subsidy values will reduce the RIN excess in the back half of the year.

Exxon reported a fire at its Joliet IL refinery over the weekend, but operations appear to have been minimally impacted as basis values in the often-manic Chicago market barely flinched following that news.

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Pivotal Week For Price Action
Market TalkMonday, May 20 2024

Energy Prices Are Starting The Week On A Soft Note

Energy prices are starting the week on a soft note, after a strong finish pushed WTI back above $80 Friday, while RBOB rallied more than 14 cents off of its low for the week and ULSD added 11.

Plenty of geopolitical turmoil doesn’t appear to be stirring much buying interest so far. The biggest story of the weekend is that Iran’s president was killed in a helicopter crash, setting off a slew of questions in one of the world’s largest exporters of oil and violence. In other regime change news, the Saudi Crown Prince is delaying travel due to the deteriorating health of the king just as the country is about to sign a historic security deal with the US.

The market is also appearing to shrug off more “same old violence” news: Another round of drone strikes took another Russian refinery off-line over the weekend, and an oil tanker going from Russia to China was hit by a Houthi Missile, which proves the rebel group’s aim continues to be better than its judgement, particularly with Russia’s oil exports accounting for the vast majority of the southbound tanker traffic through the Red Sea. While these ongoing attacks are no doubt creating supply issues locally, they’ve yet to move the needle on the global market.

Throwing in the towel? Money managers reduced both their long and short positions in WTI and RBOB contracts last week as some big funds seemed to be giving in to the idea that the spring rally is officially over, while others may already be taking profits after the big sell-off in May. Brent crude saw more long liquidation and new short positions added, while both ULSD and Gasoil diesel contracts saw fresh bets on higher prices ahead after prices reached 10-month lows last week. The open interest on ULSD contracts reached a 2.5 year high last week as the reduction in volatility this year continues to encourage more participants to rejoin the market after bailing out during the chaos of 2022.

Two big Reuters stories on the potential “Game Changer” refineries in the Atlantic Basin: Nigeria’s huge new refinery struck a supply deal with French oil major Total, as that facility continues to ramp up production, bringing a new major buyer for WTI, and a new seller of refined products. That facility still isn’t producing much in the way of fully finished products, but it’s already sending partially refined fuels to US and European refiners for further processing. Meanwhile, Mexico’s “dream” refinery continues to be a nightmare as actual crude processing rates are just 5% of capacity despite numerous claims by the country’s president and PEMEX puppets to the contrary. The longer that refinery is unable to produce finished products, the more demand there will be for US Gulf Coast refineries who depend on Mexico for roughly half of their gasoline exports and a third of their diesel sent out of the country.

Baker Hughes reported a net increase of 1 oil rig drilling in the US last week bringing the total to 497 rigs vs 575 this time last year, while the natural gas rig count held steady at 103 compared to 141 a year ago. The increase for oil rigs was the first in 4 weeks.

Valero reported a 2nd upset in as many days at its McKee refinery in the TX panhandle that knocked an FCC unit offline. Surprisingly that appears to be the only refinery reporting a unit knocked offline by last week’s deadly storms, despite more severe weather sweeping through Houston and across much of refinery row.

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Pivotal Week For Price Action
Market TalkFriday, May 17 2024

The Recovery Rally In Energy Markets Continues For A 3rd Day

The recovery rally in energy markets continues for a 3rd day with refined product futures both up more than a dime off of the multi-month lows we saw Wednesday morning. The DJIA broke 40,000 for the first time ever Thursday, and while it pulled back yesterday, US equity futures are suggesting the market will open north of that mark this morning, adding to the sends of optimism in the market.

Despite the bounce in the back half of the week, the weekly charts for both RBOB and ULSD are still painting a bearish outlook with a lower high and lower low set this week unless the early rally this morning can pick up steam in the afternoon. It does seem like the cycle of liquidation from hedge funds has ended however, so it would appear to be less likely that we’ll see another test of technical support near term after this bounce.

Ukraine hit another Russian refinery with a drone strike overnight, sparking a fire at Rosneft’s 240mb/day Tuapse facility on the black sea. That plant was one of the first to be struck by Ukrainian drones back in January and had just completed repairs from that strike in April. The attack was just one part of the largest drone attack to date on Russian energy infrastructure overnight, with more than 100 drones targeting power plants, fuel terminals and two different ports on the Black Sea. I guess that means Ukraine continues to politely ignore the White House request to stop blowing up energy infrastructure in Russia.

Elsewhere in the world where lots of things are being blown up: Several reports of a drone attack in Israel’s largest refining complex (just under 200kbd) made the rounds Thursday, although it remains unclear how much of that is propaganda by the attackers and if any impact was made on production.

The LA market had 2 different refinery upsets Thursday. Marathon reported an upset at the Carson section of its Los Angeles refinery in the morning (the Carson facility was combined with the Wilmington refinery in 2019 and now reports as a single unit to the state, but separately to the AQMD) and Chevron noted a “planned” flaring event Thursday afternoon. Diesel basis values in the region jumped 6 cents during the day. Chicago diesel basis also staged a recovery rally after differentials dropped past a 30 cent discount to futures earlier in the week, pushing wholesale values briefly below $2.10/gallon.

So far there haven’t been any reports of refinery disruptions from the severe weather than swept across the Houston area Thursday. Valero did report a weather-related upset at its Mckee refinery in the TX panhandle, although it appears they avoided having to take any units offline due to that event.

The Panama Canal Authority announced it was increasing its daily ship transit level to 31 from 24 as water levels in the region have recovered following more than a year of restrictions. That’s still lower than the 39 ships/day rate at the peak in 2021, but far better than the low of 18 ships per day that choked transit last year.

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