Energy Futures Up Modestly After Diesel Prices Touch Pre-War Lows

Market TalkMonday, Feb 6 2023
Pivotal Week For Price Action

Diesel futures touched their lowest prices since before Russia’s invasion of Ukraine overnight before seeing a modest bounce of a couple cents this morning. The low trade at $2.7609 less than two weeks after the March HO contract hit a high of $3.58 fulfilled the technical target made when the chart support failed to hold last week and sets up a potential drop to the $2.50 range in the next few weeks if buyers don’t step in at these levels. 

While the drop in diesel futures has been eye-opening, it still hasn’t been confirmed in US Cash Markets, or by RBOB and WTI contracts that are all still trading well off their December lows. That lack of confirmation from the other contracts suggests the past two weeks have been more about diesel prices normalizing after an incredibly strong year more than a complete market collapse due to fear of a global economic slowdown.

We didn’t get to see the reaction by large speculators to the melt-down that came right after they’d increased their bets on higher prices, as the CFTC was forced to delay publication of its weekly Commitments of Traders report due to a Russian-linked ransomware attack at ION Derivatives, a UK-based service provider that processes transactions and submits trading data to the agency. It appears that the attack may be disrupting trading in some ETF derivatives but is not directly impacted trading on any NYMEX or ICE Commodity futures or options.

The official embargo on Russian diesel exports took effect Sunday, without much fanfare as Western buyers had months to stock up ahead of time and flows of product to the East seem to be ramping up well. A Bloomberg note over the weekend highlighted the increasing role India is playing in turning Russian crude and unfinished fuel oil into gasoline and diesel destined for the US and Europe.

Motiva’s Port Arthur Refinery reported an incident over the weekend that disrupted operations at one of its coker units. The event caused flaring for around 5 hours, but at this point it does not appear that run rates were reduced because of it. 

The IEA’s director over the weekend said the potential rebound in demand from China may force producers to reconsider their output policies this year, implying that OPEC would need to end its voluntary restrictions to meet the increased consumption. 

US oil producers aren’t acting like they got that memo, with Baker Hughes reporting a decline of 10 oil rigs and 2 natural gas rigs in the US last week, bringing the total count to a 4-month low. The declines were spread out fairly evenly across the drilling geography suggesting this wasn’t an isolated even caused by the winter storms.

The huge earthquake that killed more than 1,000 people in Turkey also temporarily halted operations at a major crude oil pipeline system that delivers oil from origin points in the Caspian Sea and Iraq to the Mediterranean.  It appears that major damage was avoided to the pipeline, so shipping should be able to resume shortly. Syria was forced to shut its largest refinery after the quake, but given that facility is only 130mb/day, and it’s in Syria, it’s not going to have much impact on markets elsewhere.

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Market Talk Update 02.06.2023

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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.

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

Pivotal Week For Price Action
Market TalkThursday, May 16 2024

Energy Prices Found A Temporary Floor After Hitting New Multi-Month Lows Wednesday

Energy prices found a temporary floor after hitting new multi-month lows Wednesday morning as a rally to record highs in US equity markets and a modestly bullish DOE report both seemed to encourage buyers to step back into the ring.

RBOB and ULSD futures both bounced more than 6 cents off of their morning lows, following a CPI report that eased inflation fears and boosted hopes for the stock market’s obsession of the FED cutting interest rates. Even though the correlation between energy prices and equities and currencies has been weak lately, the spillover effect on the bidding was clear from the timing of the moves Wednesday.

The DOE’s weekly report seemed to add to the optimism seen in equity markets as healthy increases in the government’s demand estimates kept product inventories from building despite increased refinery runs.

PADD 3 diesel stocks dropped after large increases in each of the past 3 weeks pushed inventories from the low end of their seasonal range to average levels. PADD 2 inventories remain well above average which helps explain the slump in mid-continent basis values over the past week. Diesel demand showed a nice recovery on the week and would actually be above the 5 year average if the 5% or so of US consumption that’s transitioned to RD was included in these figures.

Gasoline inventories are following typical seasonal patterns except on the West Coast where a surge in imports helped inventories recover for a 3rd straight week following April’s big basis rally.

Refiners for the most part are also following the seasonal script, ramping up output as we approach the peak driving demand season which unofficially kicks off in 10 days. PADD 2 refiners didn’t seem to be learning any lessons from last year’s basis collapse and rapidly increased run rates last week, which is another contributor to the weakness in midwestern cash markets. One difference this year for PADD 2 refiners is the new Transmountain pipeline system has eroded some of their buying advantage for Canadian crude grades, although those spreads so far haven’t shrunk as much as some had feared.

Meanwhile, wildfires are threatening Canada’s largest oil sands hub Ft. McMurray Alberta, and more than 6,000 people have been forced to evacuate the area. So far no production disruptions have been reported, but you may recall that fires in this region shut in more than 1 million barrels/day of production in 2016, which helped oil prices recover from their slump below $30/barrel.

California’s Air Resources Board announced it was indefinitely delaying its latest California Carbon Allowance (CCA) auction – in the middle of the auction - due to technical difficulties, with no word yet from the agency when bidders’ security payments will be returned, which is pretty much a nice microcosm for the entire Cap & Trade program those credits enable.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.

Pivotal Week For Price Action
Market TalkWednesday, May 15 2024

Week 19 - US DOE Inventory Recap