Energy Futures Contracts Are Up 70-80% As The Explosive Rally Has Gone Parabolic

Market TalkWednesday, Mar 2 2022
Pivotal Week For Price Action

Yesterday we said energy futures were up 60% since Early December, and today we can say that those same contracts are up 70-80% as the explosive rally has gone parabolic. 

While Russian energy exports have not been explicitly targeted (and in fact have been explicitly left off of official sanctions to try and avoid this exact type of price behavior) the reality is Russian commodities are seeing de-facto sanctions as buyers (and oil majors) around the world avoid any association with the country. 

Unfortunately, the reality is that in the near term the only solution to high prices without a rapid de-escalation in Ukraine is demand destruction as consumers become unable, or unwilling, to pay the higher prices.    

That expected demand destruction is visible in the forward pricing curve for WTI where 3 year forward values have actually moved lower over the past week even as prompt values have skyrocketed.   The concern over future demand is also visible in environmental credits which plummeted Tuesday as it appears that not only will energy consumption drop, but so too will the environmental movement as a priority compared with energy security.

ULSD highest since August 2008, on its way down from $4.15 in July 2008 to $1.13 in February 2009.  Hopefully the demand destruction this time around won’t be nearly as bad as it was then.

WTI highest since May 2011, as prices cooled following the “Arab Spring”.  WTI prices are now more than $150/barrel higher than they traded April 20 of 2000 when prices went to negative $40.

RBOB:  Highest since September 2012, after prices spiked following Hurricane Isaac.

Brent:  Highest since June 2014, just before prices collapsed as OPEC decided to have a price war with US Shale producers. 

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

Market Talk Update 3.2.22

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Market TalkFriday, Jun 2 2023

Energy Prices Up Over 2% Across The Board This Morning

Refined product futures traded in an 8-10 cent range yesterday with prompt heating oil settling up ~6 cents and RBOB ending up about flat. Oil prices clawed back some of the losses taken in the first two full trading days of the week, putting the price per barrel for US crude back over the $70 mark. Prices are up just over 2% across the board this morning, signifying confidence after the Senate passed the bipartisan debt ceiling bill last night.

The EIA reported crude oil inventories up 4.5 million barrels last week, aided by above-average imports, weakened demand, and a sizeable increase to their adjustment factor. The Strategic Petroleum Reserve continues to release weekly through June and the 355 million barrels remaining in the SPR is now at a low not seen since September 1983. Exports increased again on the week and continue to run well above last year’s record-setting levels through the front half of the year. Refinery runs and utilization rates have increased to their highest points this year, both sitting just above year-ago rates.

Diesel stocks continue to hover around the low end of the 5-year range set in 2022, reporting a build of about half of what yesterday’s API data showed. Most PADDs saw modest increases last week but all are sitting far below average levels. Distillate imports show 3 weeks of growth trending along the seasonal average line, while 3.7 million barrels leaving the US last week made it the largest increase in exports for the year. Gasoline inventories reported a small decline on the week, also being affected by the largest jump in exports this year, leaving it under the 5-year range for the 11th consecutive week. Demand for both products dwindled last week; however, gas is still comfortably above average despite the drop.

The sentiment surrounding OPEC+’s upcoming meeting is they’re not likely to extend oil supply cuts, despite prices falling early in the week. OPEC+ is responsible for a significant portion of global crude oil production and its policy decisions can have a major impact on prices. Some members of OPEC+ have voluntarily cut production since April due to a waning economic outlook, but the group is not expected to take further action next week.

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

Pivotal Week For Price Action
Market TalkThursday, Jun 1 2023

Prices Are Mixed This Morning As The Potential Halt In U.S. Interest Rate Hikes

Bearish headlines pushed refined products and crude futures down again yesterday. Prompt RBOB closed the month at $2.5599 and HO at $2.2596 with WTI dropping another $1.37 to $68.09 and Brent losing 88 cents. Prices are mixed this morning as the potential halt in U.S. interest rate hikes and the House passing of the US debt ceiling bill balanced the impact of rising inventories and mixed demand signals from China.

The American Petroleum Institute reported crude builds of 5.2 million barrels countering expectations of a draw. Likewise, refined product inventories missed expectations and were also reported to be up last week with gasoline adding 1.891 million barrels and diesel stocks rising 1.849 million barrels. The market briefly attempted a push higher but ultimately settled with losses following the reported supply increases implying weaker than anticipated demand. The EIA will publish its report at 10am this morning.

LyondellBasell announced plans yesterday to delay closing of their Houston refinery, originally scheduled to shut operations by the end of this year, through Q1 2025. The company “remains committed to ceasing operation of its oil refining business” but the 289,000 b/d facility remaining online longer than expected will likely have market watchers adjusting this capacity back into their balance estimates.

Side note: there is still an ongoing war between Russia and Ukraine. Two oil refineries located east of Russia's major oil export terminals were targeted by drone attacks. The Afipsky refinery’s 37,000 b/d crude distillation unit was struck yesterday, igniting a massive fire that was later extinguished while the other facility avoided any damage. The attacks are part of a series of intensified drone strikes on Russian oil pipelines. Refineries in Russia have been frequently targeted by drones since the start of the military operation in Ukraine in February 2022.

Pivotal Week For Price Action
Market TalkThursday, Jun 1 2023

Week 22 - US DOE Inventory Recap