Energy Prices Are Moving Lower In The Early Going Friday After A Strong Week

Market TalkFriday, Aug 12 2022
Pivotal Week For Price Action

Energy prices are moving lower in the early going Friday after a strong week in which fear of inflation and slowing demand both eased, while fears of supply disruptions returned. From a chart perspective, gasoline and diesel prices have returned into more neutral territory after failing to break near term resistance and are set up for another period of back and forth action – just like we saw yesterday with ULSD experiencing multiple 10 cent moves on the day.

The IEA disagreed with OPEC’s estimates for declining global fuel demand Wednesday, raising its oil consumption estimates, with consumers switching to oil-based products to supplement the electricity grid during the summer heat wave (and tight natural gas supplies) driving the increase and masking the “…relative weakness in other sectors…”. Of course, it’s typically not crude oil that’s being used to supplement electricity supplies, it’s some form of diesel whether it be known as Gasoil, fuel oil etc. which explains why we’ve seen ULSD prices react to movements in natural gas prices, while gasoline prices tend to go their own way. 

The IEA increased its forecast for Russian oil output as buyers in some parts of the world are getting awfully creative to find ways around sanctions. Read here for an interesting story on a big gamble on old ships to carry out dangerous ship to ship transfers of Russian crude.  Never doubt the ingenuity of an oil trader.

The IEA’s monthly report ended with a word of caution:  “…with supply increasingly at risk to disruptions, another price rally cannot be excluded.” Read this Reuters note for more specifics on why European distillates are particularly vulnerable.

Speaking of disruptions, the storm system moving across the Atlantic didn’t turn into anything this week and the only other system on the NHC’s watch list is given just 10% odds of developing off the coast of Texas and Louisiana, although it is expected to bring heavy rains to the region over the weekend.    We’re getting to the time of year where we can expect waves to move off the African coast every few days, and each of those waves has the chance to become a hurricane. Where those storms head will likely determine if this season is a nuisance or a disaster for energy supplies, with early forecasts suggesting Florida may be the storm magnet this year, which would be bade news for retirees, but good news for suppliers compared to the past 2 years of Louisiana landfalls that pummeled refinery row.

There are all sorts of new energy-related incentives in the new bill moving through congress. While electric vehicle incentives are capturing much of the attention, a lack of domestic battery production may limit the impact of those plans. Meanwhile, residential heat pumps may become the hot new item and lower carbon cement could end up making a larger impact on emissions than the slow moving changes in the transportation sector.  

Massachusetts is jumping on the congressional climate bandwagon, passing a new bill this week that would join the California dream of banning sales of new gasoline and diesel powered vehicles in 2035, and designate some cities as fossil fuel free and ban natural gas in new construction. This comes just a few months after the state backed out of the proposed Transportation and Climate initiative that would have enforced a cap and trade style program on fuel suppliers. 

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

Market Talk Update 08.12.22

News & Views

View All
Market Talk Updates - Social Header
Market TalkMonday, Jun 17 2024

CFTC Commitment Of Traders Report Confirmed Short Covering Was Pushing Up Pricing

It’s a quiet start to the week for energy contracts with modest gains of around a penny in the early going for refined products, while crude oil contracts are up less than 50 cents/barrel.

Houthi Rebels continue to attack ships transiting the Red Sea, with the U.S. Navy forced to rescue the crew from 2 different cargo ships that were struck over the past week.

China’s refineries slowed their run rates in May as planned maintenance and weak margins were both cited as contributing to a pullback from the world’s largest oil importer.

The CFTC’s commitment of traders report Friday confirmed that short covering by money managers was most certainly pushing up prices the week prior. WTI saw nearly half of its large speculative short positions bought back in just 1 week, while Brent’s multi-year high short bets were cut by 20%. In total, more than 62,000 crude contracts and 20,000 diesel contracts were repurchased after funds realized their bet that prices would continue sliding after they’d already hit multi-month lows was a mistake. The unwinding of the big speculators’ bets on lower oil prices will no doubt thrill the Saudi Arabian oil minister who famously threatened the “gamblers” back in 2020.

The National Hurricane Center is tracking 2 potential storm systems this week, one in the SW Gulf of Mexico is now given 70% odds of being named, but is expected to move inland over Mexico and not bring a major threat, but will bring thunderstorms to the U.S. Gulf Coast this week. The other system is only given 30% odds of development off of the coast of Georgia or South Carolina and doesn’t appear to be a threat to energy infrastructure.

The EIA published its annual U.S. refining capacity report Friday, which shows operating facilities as of January 1. It finally caught up with the Beaumont facility expansion completed more than 15 months ago, marking the largest growth in U.S. capacity in nearly a decade. Total operable capacity is still below the peak set in 2019 and is expected to drop further as the P66 Rodeo facility was converted this year, and the Lyondell Houston Refinery is once again expected to shut its doors at the end of the year. Since the government’s report is so far delayed, perhaps the most interesting part is the listing of all refineries that have closed since 1990.

Total reported 24 hours of flaring at its Port Arthur, TX refinery over the weekend. The only unit mentioned as a Flare Gas Recovery system so it appears the event won’t have a major impact on operations.

Baker Hughes reported 4 more oil rigs were taken offline in the U.S. last week, bringing the total count to a 2.5-year low at 488. Natural gas rigs were unchanged on the week at 98, the lowest total since October 2021.

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

Market Talk Updates - Social Header
Market TalkFriday, Jun 14 2024

ULSD Futures Leading The Energy Markets Recovery Rally Today With 6 Week High

The recovery rally continues in energy markets with ULSD futures leading the way reaching a 6 week high this morning. If you were one of the money managers who decided to jump on the short-selling bandwagon at the start of June, you’re now underwater by around $5/barrel for crude oil contracts, and 25 cents/gallon for diesel contracts, which appears to be adding upward pressure to the market as that hot money heads for the exits, and is forced to buy out of their losing bets.

The recovery rally in refined products hasn’t done much to help out refiners that are still looking at their worst summer margins since the COVID lockdowns. The margin outlook is even worse for refiners in other parts of the world, particularly in Asia which is dealing with a glut of supply due to a rush of capacity additions in the past 2 years. Singapore announced this week that it was offering carbon tax rebates for its refiners to try and keep them afloat and able to compete with their new competition from China and Kuwait.

The enemy of my enemy: The American Farm Bureau and Corn Growers associations joined the American Petroleum Institute in a lawsuit Thursday challenging the EPA’s vehicle emissions standards. After the Ag and Oil lobbies have spent decades competing with each other for tax incentives and mandates on ethanol and biodiesel blends, they’ve found common ground in fighting the threat of EVs on their market share, with farmers providing the logical argument that rural communities [and tractors] aren’t conducive to EV use. The Renewable Fuel Association meanwhile is promoting its solution: Plug-in electric hybrid flex-fuel vehicles, or PHEFFVs for not-so-short.

The NHC is now giving 50% odds of development for the storm system brewing off of Mexico’s eastern coastline, but even if that system is named it looks like it will head west over land before threatening the U.S. The other system that threatened Florida this week is now making its way up the East Coast, but won’t be a major storm. Florida is still dealing with flash flooding, but so far there are no reports of terminal outages or port disruptions.

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

Market Talk Updates - Social Header
Market TalkThursday, Jun 13 2024

Bearish Fundamentals, Hawkish FED Sentiment Leave Energy Futures Searching For Direction

It’s been a choppy morning for energy futures so far, bouncing back and forth between small gains and losses after more inventory builds and a hawkish outlook from the FED both combined to put a stop to the recovery rally Wednesday.

Refined products were trading up 4-5 cents/gallon ahead of the DOE’s weekly report yesterday morning, but quickly wiped out most of those gains after the agency showed more builds in refined product inventories which have reached their highest levels for June since 2021. Refiners did cut run rates for the first time in 6 weeks, but the declines were minor and overall throughput rates remain at the top end of the seasonal range. The DOE’s estimate for product demand did tick modestly higher as well, but those gains weren’t enough to stop the trend of steadily increasing stocks.

Meanwhile, the EIA is still struggling to get its accounting system to keep pace with the U.S. market, as its adjustment factor swings from adding around 8 million barrels the week prior to taking away around 8 million barrels this week. A surge in oil imports to a 5-year high (thanks Transmountain Pipeline) helped oil inventories continue to increase despite that huge drop in the adjustment factor and a drop in exports last week.

The FED left interest rates alone Wednesday and signaled it was likely there would only be 1 rate cut in 2024. Odds of a 25-point cut at the July 31 FOMC meeting dropped from 21% to 8% after the announcement according to the CME’s Fedwatch tool.

The tropics are getting active already in what’s expected to be a very busy year for storm activity. There’s a system that moved over Florida this week, and while it’s only given 20% odds of being named, it dumped more than a foot of rain on parts of the state. So far the Pt Everglades terminal facilities seem like they’ve weathered the big rain much better than when several of them ended up under water from flash flooding a year ago. There’s another system given 40% odds of developing off the Mexican coast, but early forecasts have it shifting west into Mexico and not targeting the U.S. Gulf Coast.

Valero reported an upset at its McKee TX refinery following a Thunderstorm Wednesday, but it appears no operating units were forced to slow down from that event. Meanwhile, Marathon’s Galveston Bay refinery is working its way back towards the lead in the race to have the most TCEQ filings, with yet another upset reported yesterday, this time in a sulfur recovery unit which was able to return to service in roughly 5 hours.

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