Energy Markets On The Brink Of Technical Breakdown
Another big reversal from a morning rally Wednesday has left energy markets on the brink of a technical breakdown that could mean dramatically lower prices in the coming weeks, but so far are managing to cling to support and not break the bullish trend-lines. The lack of an OPEC deal continues to roil the energy markets, while global equity markets are selling off a day after US indices reached new record highs, which is being blamed on concerns about the latest COVID outbreaks.
RBOB gasoline futures have a bullish trend line just under the $2.18 mark, and hit a low of $2.1775 before bouncing back to positive territory north of $2.21 this morning. That makes the trend line look pivotal as a break down should have prices testing the $2 mark later in the month, while a hold here may encourage buyers to step back in. It’s not just refined products that are teetering on the edge of a technical breakdown. Ethanol prices are threatening a drop below $2.25, which looks like a technical trap door that could lead to prices quickly falling below $2 should support break. RINs are also coming under heavy selling pressure, but remain 20 cents above where they bottomed out in June.
The White House is also weighing in on the OPEC non-agreement, as the administration takes heat for the rapid increase in fuel prices. That pressure may trickle down to the EPA and how they handle the overdue RFS volume obligations, which may help explain some of the selling in RINs after they rallied to end last week when a court vacated the ruling to allow E15 in the summer time.
The EIA’s monthly short term energy outlook continued to forecast that global petroleum demand would climb back to pre-pandemic levels by next year, but suggests that US Gasoline demand will not thanks to a combination of greater fuel efficiency and work from home policies. The report also highlighted the growth in US gas liquid production and trade, led by steadily climbing propane exports. The report highlighted the continued slow but steady growth in renewable fuel and electricity options, but also highlighted that coal usage will increase after many years of decline thanks in large part to rising natural gas prices.
The EIA’s weekly report was delayed by the holiday and is due out at 10 a.m. central. The API report was also delayed a day, and continued the streak of large crude oil inventory declines (7.9 million barrels last week) while refined products build (2.7 million barrels for gasoline and 1.1 for diesel). California apparently doesn’t celebrate independence day, releasing its weekly data on schedule, showing a build in gasoline production, while distillate output fell, thanks to southern California refiners reaching a 3 month low.
Today’s interesting read: how long does it take for an EV to become cleaner than gasoline-fueled cars?
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Gasoline Futures Are Leading The Way Lower This Morning
It was a volatile night for markets around the world as Israel reportedly launched a direct strike against Iran. Many global markets, from equities to currencies to commodities saw big swings as traders initially braced for the worst, then reversed course rapidly once Iran indicated that it was not planning to retaliate. Refined products spiked following the initial reports, with ULSD futures up 11 cents and RBOB up 7 at their highest, only to reverse to losses this morning. Equities saw similar moves in reverse overnight as a flight to safety trade soon gave way to a sigh of relief recovery.
Gasoline futures are leading the way lower this morning, adding to the argument that we may have seen the spring peak in prices a week ago, unless some actual disruption pops up in the coming weeks. The longer term up-trend is still intact and sets a near-term target to the downside roughly 9 cents below current values. ULSD meanwhile is just a nickel away from setting new lows for the year, which would open up a technical trap door for prices to slide another 30 cents as we move towards summer.
A Reuters report this morning suggests that the EPA is ready to announce another temporary waiver of smog-prevention rules that will allow E15 sales this summer as political winds continue to prove stronger than any legitimate environmental agenda. RIN prices had stabilized around 45 cents/RIN for D4 and D6 credits this week and are already trading a penny lower following this report.
Delek’s Big Spring refinery reported maintenance on an FCC unit that would require 3 days of work. That facility, along with several others across TX, have had numerous issues ever since the deep freeze events in 2021 and 2024 did widespread damage. Meanwhile, overnight storms across the Midwest caused at least one terminal to be knocked offline in the St. Louis area, but so far no refinery upsets have been reported.
Meanwhile, in Russia: Refiners are apparently installing anti-drone nets to protect their facilities since apparently their sling shots stopped working.
Click here to download a PDF of today's TACenergy Market Talk.
The Sell-Off Continues In Energy Markets, RBOB Gasoline Futures Are Now Down Nearly 13 Cents In The Past Two Days
The sell-off continues in energy markets. RBOB gasoline futures are now down nearly 13 cents in the past two days, and have fallen 16 cents from a week ago, leading to questions about whether or not we’ve seen the seasonal peak in gasoline prices. ULSD futures are also coming under heavy selling pressure, dropping 15 cents so far this week and are trading at their lowest level since January 3rd.
The drop on the weekly chart certainly takes away the upside momentum for gasoline that still favored a run at the $3 mark just a few days ago, but the longer term up-trend that helped propel a 90-cent increase since mid-December is still intact as long as prices stay above the $2.60 mark for the next week. If diesel prices break below $2.50 there’s a strong possibility that we see another 30 cent price drop in the next couple of weeks.
An unwind of long positions after Iran’s attack on Israel was swatted out of the sky without further escalation (so far anyway) and reports that Russia is resuming refinery runs, both seeming to be contributing factors to the sharp pullback in prices.
Along with the uncertainty about where the next attacks may or may not occur, and if they will have any meaningful impact on supply, come no shortage of rumors about potential SPR releases or how OPEC might respond to the crisis. The only thing that’s certain at this point, is that there’s much more spare capacity for both oil production and refining now than there was 2 years ago, which seems to be helping keep a lid on prices despite so much tension.
In addition, for those that remember the chaos in oil markets 50 years ago sparked by similar events in and around Israel, read this note from the NY Times on why things are different this time around.
The DOE’s weekly status report was largely ignored in the midst of the big sell-off Wednesday, with few noteworthy items in the report.
Diesel demand did see a strong recovery from last week’s throwaway figure that proves the vulnerability of the weekly estimates, particularly the week after a holiday, but that did nothing to slow the sell-off in ULSD futures.
Perhaps the biggest next of the week was that the agency made its seasonal changes to nameplate refining capacity as facilities emerged from their spring maintenance.
PADD 2 saw an increase of 36mb/day, and PADD 3 increased by 72mb/day, both of which set new records for regional capacity. PADD 5 meanwhile continued its slow-motion decline, losing another 30mb/day of capacity as California’s war of attrition against the industry continues. It’s worth noting that given the glacial pace of EIA reporting on the topic, we’re unlikely to see the impact of Rodeo’s conversion in the official numbers until next year.
Speaking of which, if you believe the PADD 5 diesel chart below that suggests the region is running out of the fuel, when in fact there’s an excess in most local markets, you haven’t been paying attention. Gasoline inventories on the West Coast however do appear consistent with reality as less refining output and a lack of resupply options both continue to create headaches for suppliers.