Energy Futures Rallied To End The Day

Market TalkThursday, Oct 4 2018
Energy Futures Rallied To End The Day

After a soft start to Wednesday’s session, energy futures rallied to end the day, with Brent, WTI and ULSD contracts all reaching new 3 year and 11 month highs. We’re seeing a similarly soft start to today’s trading but the sellers seem cautious as the oil market has the feel of a bullish freight train that no one wants to step out in front of. The EIA weekly report surprised many with a large build in crude oil stocks that initially sent prices lower, only to see buyers step in as it seemed those increases were driven by the volatile nature of the import/export flow for oil in the US.

Oil stocks had their largest weekly increase of the year, rising just under 8 million barrels as export dropped sharply, which accounted for 6.4 million barrels of the increase.

Refinery runs offered a bit of a surprise, with rates rising in 4 out of 5 PADDS, and showing a small net increase of 77mb/day nationwide despite the expectations for a busy fall maintenance season. As the Refinery Run charts below show, we are still on the early side of the seasonal maintenance window, so it’s likely we’ll continue to see rates drop over the next 4 weeks. Midwest (PADD 2) run rates reached their lowest level in nearly 2.5 years, while Gulf Coast (PADD 3) rates continue to impress, running nearly ½ million barrels/day more than they’ve ever done this time of year.

There’s a glut of gasoline inventory in parts of the US that’s just not going away. Total US gasoline stocks held above their 5-year seasonal range this week, with another counter-seasonal build in PADD 1 inventories largely offsetting declines in the other 4 PADDs. The excess along the East Coast may account for the relative underperformance of RBOB vs the rest of the petroleum complex over the past few weeks. The reason for the excess in gasoline inventories is easily explained by refinery output that is holding above the high end of its 5 year range, while demand is stagnating near the 5 year average.

The storm system moving through the Caribbean is still given a 30% chance of development, although forecast models suggest it’s likely it will make it into the central to eastern part of the Gulf of Mexico next week. That’s good news for the refineries along the TX Gulf Coast, but LA refiners will have to watch for a few more days.

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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.

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Refined Products Seeing Small Losses Of Around A Penny While Crude Oil Contracts Hover Just Above Break Even

Energy futures are taking a breather to start Tuesday’s trading, with refined products seeing small losses of around a penny while crude oil contracts hover just above break even.

No new news on either the Red Sea shipping or Russian Refining attacks this morning, so Cocoa prices seem to be taking over the commodity headlines while energy markets wait on their next big move.

RBOB gasoline futures set a new 6-month high Monday at $2.7711, which leaves the door open on the weekly charts for the spring rally to continue. A run at the $3 mark is certainly possible in the next few weeks before the typical seasonal price peak is set just before the start of driving season.

A container ship lost power and crashed into the Francis Scott Key bridge in Baltimore this morning, causing a devastating collapse. While cargo shipping into the area will no doubt be impacted by this event, fuel supplies are unlikely to see any notable change since the 9 fuel terminals in Baltimore are primarily supplied by Colonial pipeline. Barges from Philadelphia refineries do supplement Baltimore supplies at times, and those vessel flows will be impacted at least until rescue operations are completed and the bridge sections removed from the waterway. That said, since shipping up from the Gulf Coast via Colonial is generally cheaper than shipping an NY Harbor-priced barrel south, the amount of supply disrupted by this event will be minimal.

While we’re still waiting on the official forecasts for the Atlantic Hurricane season, early reports continue to suggest that we could be in for a very busy year due to warm water temperatures and a forming La Nina pattern.

Dallas meanwhile is preparing for a different sort of disruption, with city officials encouraging companies to let employees work from home during the solar eclipse on April 8th as metroplex traffic is expected to surge. While some isolated fuel outages are certainly possible if people start panic buying gasoline they don’t need, there’s no reason to expect any widespread impact from the demand spike.

Today’s interesting read: Why AI requires a staggering amount of electricity and may create supply competition for EVs that will end up benefitting fossil fuels.

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