Energy Markets Show Modest Gain On Mixed Economic Data, Strong Demand Estimates

Market TalkFriday, Jul 7 2023
Pivotal Week For Price Action

Energy markets are moving modestly higher Friday morning after another whipsaw session Thursday that saw heavy morning losses following a strong payroll report wiped out in the afternoon thanks in part to some strong demand estimates from the DOE.

After another quiet overnight session, refined product prices jumped immediately following the June federal payrolls report this morning, that showed 209,000 jobs added, which was less than half of yesterday’s big estimate from ADP that spooked equity markets. Adding to the bad news is good news theme, downward revisions took away 110,000 jobs from prior estimates. The headline unemployment rate ticked down to 3.6%, but the U-6 rate (aka the real rate) ticked up to 6.9% marking the highest level in a year. 

The DOE’s weekly status report had the highest weekly gasoline demand estimate in nearly 18 months, as the record-setting travel predictions ahead of the 4th of July seem to have come true.  The big question now for refiners wondering how far their margins will fall from last year’s record levels, is how bad the holiday hangover effect will be on demand this year.  The big tick higher in consumption combined with the 4th straight reduction in total refinery runs pushed US gasoline days of inventory on hand to their lowest levels of the year, and below the 5-year seasonal range.

Diesel demand saw a healthy recovery off of last week’s terrible estimate that put consumption back to COVID lockdown levels but remains below average for this time of year. Despite that soft consumption, diesel stocks remain well below average in most PADDs, which is causing some to start worrying about the next supply crunch if the trucking recession soon comes to an end. The contrary argument is that PADD 5 stocks still don’t account for the major influx of Renewable Diesel in the “total diesel” inventories, so the actual stocks on hand are sure to be much higher than shown.  

Crude oil stocks declined last week even though refinery runs dropped, the EIA released more barrels from the SPR, imports increased and exports decreased. How can that be possible?  The adjustment factor dropped by 1.2 million barrels/day, which essentially means there were 8 million barrels of oil taken away from the figures that can’t be accounted for. This large gap in the reporting helps explain why the agency’s total petroleum demand figures are no longer a figure watched closely by the industry.

Colorado State increased its 2023 Atlantic hurricane forecast Thursday and now calls for an above-average season, but also notes larger than normal uncertainty in its outlook. The new forecast calls for 9 hurricanes from 7, and 4 Major storms, up from 3. For the time being the tropics are quiet in the Atlantic basin, with a healthy amount of Saharan dust helping to limit development after a flurry of activity 2 weeks ago.

California reached a deal with truck manufacturers to ease the states zero emissions goals to better align with the EPA’s standards, and reality. CARB also committed to “Providing no less than 4 years of lead time and at least 3 years of regulatory stability before imposing the zero-emissions requirements. Depending on your definition of regulatory stability, that promise may mean those restrictions will never move forward.

Meanwhile, the EPA’s is proposing to change its GHG reporting requirements to close gaps in that process such as methane releases.

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

Market Talk Update 07.07.2023

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Pivotal Week For Price Action
Market TalkFriday, Apr 12 2024

Charts Continue To Favor A Push Towards The $3 Mark For Gasoline, While Diesel Prices May Need To Be Dragged Along For The Ride

Energy prices are rallying once again with the expected Iranian attack on Israel over the weekend appearing to be the catalyst for the move. RBOB gasoline futures are leading the way once again, trading up more than a nickel on the day to reach a fresh 7 month high at $2.8280. Charts continue to favor a push towards the $3 mark for gasoline, while diesel prices may need to be dragged along for the ride.

So far it appears that Motiva Pt. Arthur is the only refinery that experienced a noteworthy upset from the storms that swept across the southern half of the country this week. Those storms also delayed the first round of the Masters, which matters more to most traders this week than the refinery upset.

Chevron’s El Segundo refinery in the LA-area reported an unplanned flaring event Thursday, but the big moves once again came from the San Francisco spot market that saw diesel prices rally sharply to 25 cent premiums to futures. The Bay Area now commands the highest prices for spot gasoline and diesel as the conversion of 1 out of the 4 remaining refineries to renewable output is not-surprisingly creating disruptions in the supply chain.

RIN values dropped back below the 50-cent mark, after the recovery rally ran out of steam last week. The EPA is facing numerous legal challenges on the RFS and other policies, and now half of the US states are challenging the agency’s new rule restricting soot emissions. That lack of clarity on what the law actually is or may be is having widespread impacts on environmental credits around the world and makes enforcement of such policies a bit of a joke. Speaking of which, the EPA did just fine a South Carolina company $2.8 million and require that it buy and retire 9 million RINs for improper reporting from 2013-2019. The cost of those RINs now is about 1/3 of what it was this time last year, so slow playing the process definitely appears to have paid off in this case.

The IEA continues to do its best to downplay global demand for petroleum, once again reducing its economic outlook in its Monthly Report even though the EIA and OPEC continue to show growth, and the IEA’s own data shows “Robust” activity in the first quarter of the year. The IEA has come under fire from US lawmakers for changing its priorities from promoting energy security, to becoming a cheerleader for energy transition at the expense of reality.

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

Pivotal Week For Price Action
Market TalkThursday, Apr 11 2024

Diesel Prices Continue To Be The Weak Link In The Energy Chain

Energy prices are ticking modestly lower this morning, despite warnings from the US that an Iranian attack on Israeli interest is “imminent” and reports of weather induced refinery outages, as demand fears seem to be outweighing supply fears temporarily. Diesel prices continue to be the weak link in the energy chain with both the DOE and OPEC reports giving the diesel bears reason to believe lower prices are coming.

The March PPI report showed a lower inflation reading for producers than the Consumer Price Index report, leading to an immediate bounce in equity futures after the big wave of selling we saw yesterday. To put the CPI impact in perspective, a week ago Fed Fund futures were pricing in an 80% chance of an interest rate cut by the FED’s July 31 meeting, and today those odds have shrunk to 40% according to the CME’s FedWatch tool.

OPEC’s monthly oil market report held a steady outlook for economic growth and oil demand from last month’s report, noting the healthy momentum of economic activity in the US. The cartel’s outlook also highlighted significant product stock increases last month that weighed heavily on refining margins, particularly for diesel. Given the US focus on ULSD futures that are deliverable on the East Coast, which continues to have relatively tight supply for diesel, it’s easy to overlook how quickly Asian markets have gotten long on distillates unless of course you’re struggling through the slog of excess supply in numerous west coast markets these days. The OPEC report noted this in a few different ways, including a 33% decline in Chinese product exports as the region simply no longer needs its excess. The cartel’s oil output held steady during March with only small changes among the countries as they hold to their output cut agreements.

If you believe the DOE’s diesel demand estimates, there’s reason to be concerned about domestic consumption after a 2nd straight week of big declines. The current estimate below 3 million barrels/day is something we typically only see the week after Christmas when many businesses shut their doors. We know the DOE’s figures are missing about 5% of total demand due to Renewable Diesel not being included in the weekly stats, and it’s common to see a drop the week after a holiday, but to lose more than a million barrels/day of consumption in just 2 weeks will keep some refiners on edge.

Most PADDs continue to follow their seasonal trends on gasoline with 1 and 2 still in their normal draw down period, while PADD 3 is rebuilding inventories faster than normal following the transition to summer grade products. That rapid influx of inventory in PADD 3 despite robust export activity helps explain the spike in premiums to ship barrels north on Colonial over the past 2 weeks. Gasoline also saw a sizeable drop in its weekly demand estimate, but given the holiday hangover effect, and the fact that it’s in line with the past 2 years, there’s not as much to be concerned about with that figure. While most of the activity happens in PADDs 1-3, the biggest disconnect is coming in PADDs 4 and 5, with gasoline prices in some Colorado markets being sold 50 cents or more below futures, while prices in some California markets are approaching 90 cents above futures.

Severe weather sweeping across the southern US knocked several units offline at Motiva’s Pt Arthur plant (the country’s largest refinery) Wednesday, and it seems likely that Louisiana refineries will see some disruption from the storm that spawned tornadoes close to the Mississippi River refining hub. So far cash markets haven’t reacted much, but they’ll probably need more time to see what damage may have occurred.

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, Apr 10 2024

Week 14 - US DOE Inventory Recap