Energy Futures Were Going To Settle Lower

Market TalkMonday, Jul 22 2019
Energy Prices Treading Water

Early Friday afternoon it appeared that energy futures were going to settle lower for a 5th straight day, despite the ongoing tensions with Iran and the world’s most important shipping lane. Then news broke that Iran had seized two British tankers and an immediate rally pushed prices higher for the day and that buying continued when trading resumed Sunday night.

What we know now is that one tanker is still being held by Iran while the British and US weigh their options. There has been no further escalation yet, although Iran has claimed to have detained and executed some US spies (which is an occasional claim made by their regime) which may explain why the gains so far are relatively muted.

In addition to the daily dose of drama from the Strait of Hormuz, Libya was forced to shut its largest oil field over the weekend after a pipeline was sabotaged. That line and field have resumed operations as of this morning.

Baker Hughes reported a 3rd consecutive week of reductions in the active oil rig count last week. The US total dropped to a fresh 17 month low of 779, even though reports suggest US shale drillers are benefiting from the turmoil in the Middle East.

Money managers are jumping back in to bet on higher oil prices, with both Brent and WTI seeing large increases in net-length last week. The new money snapped a 9 week streak of decreases for speculative long bets on Brent crude, and could provide the catalyst for the next technical break to the upside if hedge funds and other large speculators continue to bet that the Middle East tensions will eventually reach a boiling point.

PES filed bankruptcy over the weekend – for the 2nd time in 2 years - a month after the explosion and fire shut down its operations. While there have been local challenges in replacing the East Coast’s largest capacity refinery, so far the impact has not trickled down to other markets outside of Philadelphia as many were predicting a few weeks ago.

Today’s interesting read: Bloomberg is reporting that millions of barrels of Iranian crude are stacking up in Chinese ports, which could be next hot button item in either the trade or tanker wars.

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Market TalkFriday, Jul 19 2024

Summertime-Friday-Apathy Trade Influencing Energy Markets

Energy markets are treading water to start the day as the Summertime-Friday-Apathy trade seems to be influencing markets around the world in the early going. RBOB futures are trying for a 3rd straight day of gains to wipe out the losses we saw to start the week, while ULSD futures continue to look like the weak link, trading lower for a 2nd day and down nearly 3 cents for the week.

Bad to worse: Exxon’s Joliet refinery remains offline with reports that repairs may take through the end of the month. On top of that long delay in restoring power to the facility, ENT reported this morning that the facility has leaked hydrogen fluoride acid gas, which is a dangerous and controversial chemical used in alkylation units. Chicago basis values continue to rally because of the extended downtime, with RBOB differentials approaching a 50-cent premium to futures, which sets wholesale prices just below the $3 mark, while ULSD has gone from the weakest in the country a month ago to the strongest today. In a sign of how soft the diesel market is over most of the US, however, the premium commanded in a distressed market is still only 2 cents above prompt futures.

The 135mb Calcasieu Refinery near Lake Charles LA has been taken offline this morning after a nearby power substation went out, and early reports suggest repairs will take about a week. There is no word yet if that power substation issue has any impacts on the nearby Citgo Lake Charles or P66 Westlake refineries.

Two tanker ships collided and caught fire off the coast of Singapore this morning. One ship was a VLCC which is the largest tanker in the world capable of carrying around 2 million barrels. The other was a smaller ship carrying “only” 300,000 barrels (roughly 12 million gallons) of naphtha. The area is known for vessels in the “dark fleet” swapping products offshore to avoid sanctions, so a collision isn’t too surprising as the vessels regularly come alongside one another, and this shouldn’t disrupt other ships from transiting the area.

That’s (not) a surprise: European auditors have determined the bloc’s green hydrogen goals are unattainable despite billions of dollars of investment, and are based on “political will” rather than analysis. Also (not) surprising, the ambitious plans to build a “next-gen” hydrogen-powered refinery near Tulsa have been delayed.

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

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Market TalkThursday, Jul 18 2024

Refined Products Stanch Bleeding Despite Inventory Builds And Demand Slump

Refined products are trading slightly lower to start Thursday after they stopped the bleeding in Wednesday’s session, bouncing more than 2 cents on the day for both RBOB and ULSD, despite healthy inventory builds reported by the DOE along with a large slump in gasoline demand.

Refinery runs are still above average across the board but were pulled in PADD 3 due to the short-term impacts of Beryl. The Gulf Coast region is still outpacing the previous two years and sitting at the top end of its 5-year range as refiners in the region play an interesting game of chicken with margins, betting that someone else’s facility will end up being forced to cut rates before theirs.

Speaking of which, Exxon Joliet was reportedly still offline for a 3rd straight day following weekend thunderstorms that disrupted power to the area. Chicago RBOB basis jumped by another dime during Wednesday’s session as a result of that downtime. Still, that move is fairly pedestrian (so far) in comparison to some of the wild swings we’ve come to expect from the Windy City. IIR via Reuters reports that the facility will be offline for a week.

LA CARBOB differentials are moving in the opposite direction meanwhile as some unlucky seller(s) appear to be stuck long and wrong as gasoline stocks in PADD 5 reach their highest level since February, and held above the 5-year seasonal range for a 4th consecutive week. The 30-cent discount to August RBOB marks the biggest discount to futures since 2022.

The EIA Wednesday also highlighted its forecast for rapid growth in “Other” biofuels production like SAF and Renewable Naptha and Propane, as those producers capable of making SAF instead of RD can add an additional $.75/gallon of federal credits when the Clean Fuels Producer’s Credit takes hold next year. The agency doesn’t break out the products between the various “Other” renewable fuels, but the total projected output of 50 mb/day would amount to roughly 2% of total Jet Fuel production if it was all turned to SAF, which of course it won’t as the other products come along for the ride similar to traditional refining processes.

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Market TalkWednesday, Jul 17 2024

Week 28 - US DOE Inventory Recap