Energy Markets Are Continuing To Rally After A Strong Push Higher Wednesday Sent Gasoline Futures To A 6-Month High

Market TalkThursday, Mar 14 2024
Pivotal Week For Price Action

Energy markets are continuing to rally after a strong push higher Wednesday sent gasoline futures to a 6-month high. Yesterday’s news of multiple attacks on Russian refineries had the buyers out early, and the DOE’s weekly status report added a boost to the gasoline rally, even though the report shows that the supply/demand balance is very different by product and by region.

While the DOE’s gasoline headline numbers were quite bullish, and the market reacted accordingly following the report, a look at the inventory charts below suggests we’re really just following the typical pattern of steadily drawing down stocks ahead of the spring RVP change. The DOE’s estimates showed an increase in gasoline demand for a 4th straight week, which keeps consumption right around the 5-year average for this time of year.

The USGC saw a large increase in diesel stocks last week, which helped offset another decline in PADD 3 inventories, which was foreshadowed by weaker diesel basis values over the past week.

Worst to first: After several months of being the cheapest in the country, Chicago ULSD is now tied for the most expensive nationwide as the struggle to bring BP whiting fully back online continues, which helped draw down PADD 2 diesel inventories for a 6th straight week.

While PADD 4 remains a rounding error and doesn’t really impact any futures or spot markets in a meaningful way, there does appear to be a potential diesel containment issue brewing for the Rocky Mountain region, with inventories rapidly approaching record high levels, likely in part due to the influx of renewables on the West Coast taking away one of their outlets. Several of the remaining small refiners in the region have been on the chopping block for years and this latest glut of supply will further complicate their economics.

The IEA increased its oil demand forecast in its monthly report, reluctantly following the lead of the OPEC and EIA monthly estimates, in large part due to the resilience in US economic activity in recent months. The report noted that seaborne oil exports are at an all-time high due to the major shipping disruptions forcing tankers to take longer to make their runs.

Bad news for Citgo? A Reuters report says the first round of bidding in the company’s auction didn’t go as well as hoped (almost as though bidders didn’t want to end up in years of legal battles if awarded) which suggests the courts may have to revamp the sale process that’s been going nowhere for years.

More refinery trouble? 4 different Texas facilities reported upsets to the TCEQ in the past 24 hours. P66 Borger dodged the wildfires last week, but reported 5 different flares were triggered yesterday, suggesting a multi-unit upset that could tighten up supplies stretching from the Panhandle to New Mexico. Meanwhile, Flint Hills Corpus Christi East plant and Exxon Beaumont’s chemical plant both reported brief upsets while Marathon’s Galveston Bay facility made its seemingly obligatory weekly flaring notice.

The recovery rally in RIN values continues, with both D4 and D6 prices trading north of the 50 cent mark Wednesday for the first time in a month. Recovering corn and soybean prices, which are boosting ethanol and bio prices, all seem to be contributing after all of those contracts reached multi-year lows in February.

Trouble in LaLa Land? California Carbon Allowance (CCA) prices fell by the most in 2 years Wednesday after the auction for Washington state’s made-up-carbon-credit program settled at half of the value of the December price auction, amidst concerns that program will be voted out of existence in November. While noteworthy, that drop in CCA prices only reduces the cost/gallon for consumers on the CCA line item fee (don’t call it a tax) by 1.5-2 cents from around 31.5 cents/gallon for California gasoline and 40 cents/diesel Tuesday night to 29 and 38 respectively today. The drop in Washington’s prices will be more dramatic, but since the auction values just posted yesterday, they’ll need another day to hit the racks, with just a 3-4 cent reduction witnessed so far.

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

Market Talk Update 3.14.24

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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