Energy Prices Are Moving Lower Again To Start Wednesday’s Trading, After Tuesday’s Rally Attempt Was Repelled

Market TalkWednesday, Nov 9 2022
Pivotal Week For Price Action

Energy prices are moving lower again to start Wednesday’s trading, after Tuesday’s rally attempt was repelled. Negative demand news from China and inventory builds are getting credit for the early selling, while US stock markets are also seeing some modest losses this morning as control of the US congress remains in doubt after Tuesday’s elections

The API reported US commercial oil inventories increased by 5.6 million barrels last week, with 3.6 million barrels released from the SPR. Gasoline stocks also saw a sizeable build in gasoline stocks of 2.5 million barrels, while distillates declined by 1.7 million. The DOE’s weekly report is due out at its normal time this morning.

How much is diesel worth in New York these days? Depends on who you’re asking, and which day you want it. Yesterday, the two major spot pricing agencies were more than 45 cents/gallon apart on their assessment of “prompt” ULSD in the NYH spot market with one pegging them close to $5/gallon while the other was just above $4.50. The higher assessment places those barrels nearly $1.30 above USGC values, but by the time you could actually ship a barrel to the harbor from Houston, that spread is less than half of that. 

West Coast basis values continue to rally, with LA Spot CARBOB approaching a $1/gallon premium to futures in Tuesday’s session, while diesel values rallied again, marking a 40 cent increase off of last week’s lows.  A fire broke out overnight at an LA-area refinery, which certainly won’t help cool off prices, although the extent of any operational impact remains unclear, and the video showing firefighters standing just a few yards from the flames suggests it may not have been as severe an incident as the headlines may have you believe.

Tropical storm Nicole is still expected to reach Hurricane strength before making landfall in Florida overnight. A shift south in the storm’s path moves it more than 100 miles south of Cape Canaveral, after it looked like that port (and its fuel terminals) would be within 30 miles of the storm’s eye yesterday. That does mean the storm will be closer to the Pt Everglades facilities, but they’re still 80+ miles from the current path, and on the “clean” side of the storm that will be pushing water out to sea rather than inland.  The new path also takes a direct hit on Orlando off the table, so at this point, it looks like we may see another bullet dodged for fuel supply facilities like we did with Ian. The storm will bring heavy rains to Charlotte and DC this weekend which could further pressure gasoline demand that has already started its seasonal slide.

Schadenfreude alert:  Digital currencies that promised to replace cash are now crashing due to a lack of cash

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Market Talk Update 11.09.2022

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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.

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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.

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Pivotal Week For Price Action
Market TalkWednesday, Apr 10 2024

Week 14 - US DOE Inventory Recap