Energy Futures Stumble Out Of The Gate

Market TalkMonday, Feb 10 2020
A Wild January Comes To A Close

Energy futures are stumbling out of the gate for another week after OPEC & Russia failed to agree on new output cuts, and concerns over the economic impact of the coronavirus continue to spread more than the disease itself.

RBOB futures, along with calendar spreads & NYH gasoline basis spreads all got a boost Friday from reports that the Bayway NJ refinery was forced to shut an FCC unit, and repairs may take two weeks. While total U.S. gasoline supplies remain at near all-time highs, this issue will provide some regional challenges as the East Coast is already having to work around the loss of the PES refinery last year. Premiums to ship gasoline along the Colonial pipeline’s main gasoline line reached a one-month high on the news.

Money managers continued to bail out of crude oil, with last week’s CFTC report showing more large reductions in speculative bets on higher prices for both Brent and WTI. WTI positions are now near the low end of their five year range, while Brent remains well above its average, and year-ago levels, meaning there still could be more liquidation coming. ULSD dropped further into net short territory, while RBOB contracts held near the top end of their seasonal range.

Baker Hughes reported one more oil rig was put to work last week, replacing the rig that was taken offline two weeks ago. So far for the year, six total rigs have been added. There is growing concern that the recent sell-off could be the nail in the coffin for some U.S. shale producers that had already been struggling, and that could start to show up in the weekly rig counts.

Other notable items:

Saudi Arabia and Kuwait are beginning production in the neutral zone this week for the first time in nearly five years, which could soon bring 500,000 bpd of oil production back online.

Mediators failed to reach a deal on a ceasefire in Libya, which is likely to continue reducing output by around one million barrels/day, as it has for the past month.

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Pivotal Week For Price Action
Market TalkWednesday, Jul 24 2024

Energy Futures Are Rallying Wednesday After Touching 6-Week Lows During A Heavy Sell-Off Tuesday

Energy futures are rallying Wednesday after touching 6-week lows during a heavy sell-off Tuesday. Inventory draw downs are getting some of the credit for the early bounce, while the predictably unpredictable saga of the war in Gaza is contributing to the back and forth action with headlines simultaneously highlighting ceasefire talks, and a new offensive.

The spread between RBOB gasoline in Chicago vs LA was nearly $1/gallon yesterday with Chicago-land values commanding a 65-cent premium to futures, while LA spot CARBOB held at a 30-cent discount. That spread will begin shrinking today as power has been restored to the Exxon Joliet refinery, and LA CARBOB is up more than 20 cents/gallon after transitioning to August delivery cycles.

The API reported inventory draws across the board last week with crude stocks down nearly 4 million barrels, gasoline inventories down by 2.8 million barrels and diesel inventories down by 1.5 million barrels. The EIA’s weekly report is due out at its normal time. We expect to see PADD 2 refinery runs drop by close to 200mb/day due to the downtime at Joliet and a recovery bounce in demand following last week’s holiday hangover.

The Atlantic remains quiet with no tropical activity forecast for the next week, but heavy thunderstorms are sweeping across large parts of the US, which will no double act as a damper on demand in the back half of this week. On the supply side, heavy rain and thunderstorms targeting the Beaumont/Pt Arthur and Lake Charles LA regions today puts roughly 15% of US refining capacity at risk for disruption. While these storms aren’t nearly the threat of a hurricane, we’ve already seen 2 of the refineries in that area knocked offline in July due to power issues, and we know the TX grid is proving vulnerable, so it will be a concern over the next 24-36 hours.

RIN values reached their highest levels in 6 months Tuesday, with both D4 and D6 values climbing above $.67/RIN. The rally comes as industry groups attempt to lobby congress this week to reinstate the biodiesel blenders tax credit, which is set to be replaced by the clean fuel producers credit at the end of the year. The main differences with the new CFPC rule is that it requires proof of reduced carbon intensity in order to qualify for more credit, and won’t apply to importers.

The import flows of biofuels is becoming more of a focus lately as European Union officials have slapped anti-dumping tariffs on Chinese biodiesel to alleviate pressure on local producers who have been facing negative margins for nearly 2 years and have also opened an investigation into how that Chinese bio is being certified to qualify for the various government credits that subsidize the industry.

Meanwhile, Renewable Diesel producer Braya Renewable Fuels has been charged with a dozen different health and safety violations at its converted Newfoundland refinery after an explosion that killed 1 worker and injured 7 others in 2022. In the US, another distributor settled with the EPA for more than $1 million in penalties over violations of the renewable fuel standard and other clean air program requirements.

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

Pivotal Week For Price Action
Market TalkTuesday, Jul 23 2024

WTI Has Rolled To The September Contract This Morning, Putting Prompt Crude Oil Values Below $78 For The First Time In 6 Weeks

After a brief bounce Monday afternoon, energy prices are heading lower again to start Tuesday’s session. WTI has rolled to the September contract this morning, putting prompt crude oil values below $78 for the first time in 6 weeks.

News that China was cutting interest rates in a move not many saw coming Monday got some credit for both the bounce in prices, and the subsequent pullback as the market tries to guess the impact on the world’s sputtering engine for fuel demand growth.

Crack spreads are attempting to rally this week after reaching levels that would cause some refiners to consider cutting back runs, despite being in the middle of the “busy” season for gasoline demand. The overhang of diesel supply in the US is evident in the refining cracks as ULSD margins have dropped to their lowest level in nearly 2.5 years recently, removing the margin subsidy that had helped many facilities get through the lean times for gasoline.

Of course, any facilities making RBOB near the Chicago market are benefitting from the ongoing downtime at the 250mb/day Exxon Joliet refinery that’s pushed basis values north of a 60-cent premium to futures, while West Coast refiners are seeing values 90 cents lower, in a surprisingly weak seasonal value that California regulators are taking full credit for. We’ll have to wait and see what the agency has to say as the end of summer RVP squeeze unfolds.

One factor in the relative weakness in diesel this year is that Europe remains awash in natural gas supplies, which drastically reduced the need for supplemental diesel usage to support the grid. The EIA this morning highlighted how 2 warm winters and coordinated efforts to reduce demand have helped keep inventories near all-time highs despite the loss of Russian imports.

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

Pivotal Week For Price Action
Market TalkMonday, Jul 22 2024

US Presidential Elections Seems To Have Been Taken In Stride With Only Minor Moves In Energy And Equity Markets

Energy markets are moving lower again to start the week after a big Friday sell-off pushed prices to 5-week lows. The latest weekend surprise in the US presidential elections seems to have been taken in stride with only minor moves in energy and equity markets.

Traders also seem to be shrugging off news of Israel’s retaliatory strikes in Yemen over the weekend and instead focusing on a weak technical outlook, ample inventories and soft demand.

Chicago continues to be the big story in cash markets as Exxon Joliet remains offline after a power outage a storm-induced power outage a week ago, and estimates still suggest it will be another week before power is restored. Chicago RBOB traded above a 60 cent premium to futures Friday, making it the most expensive gasoline in the country by a wide margin. The overhang of diesel across most of the country is evident here as well as diesel basis values in the region are holding close to even with futures despite the downtime.

Total’s Port Arthur refinery reported another upset Friday as that facility tries to recover from a power outage the week prior. The downtime at that facility has had minimal impact on basis values in the USGC as inventories remain ample and refinery runs are relatively high. We have seen some modest buying in the USGC RBOB market that has reduced the discount to futures by around 3 cents over the past week, but it seems that’s probably caused more by shippers that want to send barrels north to Chicago to supplement Joliet. The modest strength in Gulf Coast gasoline basis has pushed the premium for Colonial line 1 space below 3 cents/gallon, marking the lowest level in 2 months

A drone struck the 240mb/day Tuapse refinery near the Black Sea Monday, sparking a fire. That refinery has been struck multiple times by drones this year, and the extent of the damage at the facility is unclear.

Money managers were acting largely bearish in last week’s CFTC report, which isn’t too surprising given the heavy selling we saw to start the week. Large speculators cut length in Brent, RBOB and Gasoil contracts, while adding to the net short position in ULSD. European diesel (Gasoil) had become a popular bet recently, with managed money length reaching a two year high in recent weeks, only to see more than a third of that length wiped out last week alone. The exception to the rule last week came from WTI, which saw a net increase of more than 10,000 long positions held by money managers while open interest increased by more than 3% on the week. Given the weak finish Friday and start today below the $80 mark, those funds that decided to bet on higher WTI prices last week may be looking for a do-over now.

Baker Hughes reported the US oil rig count declined by 1 last week, reaching the lowest total since December 2021. Natural gas rigs meanwhile saw an increase of 3 rigs last week, the 2nd increase in 3 weeks, moving further away from the multi-year low set in June. The tick higher comes despite US natural gas prices dropping by 1/3 over the past 6 weeks, and may reflect the expectations for more LNG export capacity coming online in the next year which will allow more US production to reach global markets.

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