Energy Prices Plunged To 7 Week Lows Wednesday, Even After DOE Reported Strong Recovery
Energy prices plunged to 7 week lows Wednesday, even after the DOE reported a strong recovery in petroleum demand, putting the complex back where it started the week, on the verge of a technical breakdown that could shave another 20-30 cents/gallon off of refined products. A surge in gasoline imports may have been the biggest contributor to the pullback in prices Wednesday as it seems to have knocked the wind out of the rally in NYH spot prices, and slashed more than 1/3 of the backwardation out of that market in just a single day.
As has been the case most days ever since prices peaked a month ago, a big selloff has been met with some modest buying this morning. It looks like the $2.35 range for ULSD and $2.25 for RBOB are setting a new temporary floor, and will become the pivot point for the next several days.
Running out of ideas? As political pressure heats up over the highest inflation in 30 years, the White House seems increasingly desperate to find a solution to reduce gasoline prices. Another letter was sent to the FTC to try harder to find out who is cheating even though that produced no results the last time they tried it, more rumors of a coordinated SPR release are being floated amongst other brilliant plans like banning crude oil exports again, even though that’s more likely to raise gasoline prices by further straining the transportation network.
None of those options reflect the reality that refiners are still recovering from a near-death experience in 2020 that slashed capacity and deferred necessary repairs meaning there are no short term solutions until the plants undergoing maintenance (both planned and unplanned) can come back online, which has proved to be a big challenge in recent weeks. Even then, there’s not a short term fix to the driver shortage, which means that even when prices for diesel in Phoenix trade nearly $1/gallon above other parts of the country like they are today, long hauling fuel to help heal the supply crunch can’t happen like it would in years past.
The ethanol market remains the best indicator that this tightness is one of transportation more than supply, as $1/gallon or more of backwardation persists over the next few months, even as ethanol output in the US remains near all-time highs and inventories are holding just below their average for this time of year.
An inconvenient promise? The administration also just opened up the largest Gulf of Mexico oil lease in history, auctioning off more than 80 million acres, which of course has environmental groups fuming as it comes just a few days after pledging to aggressively reduce carbon emissions. This is the problem with a country that at least pretends to follow the rule of law, as the administration had tried to block this type of sale but was overruled in the courts, meaning this administration is now stuck granting more oil permits than its predecessor, but still seeing prices increase.
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Values For Space On Colonial’s Main Gasoline Line Continue To Drop This Week
The petroleum complex continues to search for a price floor with relatively quiet price action this week suggesting some traders are going to wait and see what OPEC and Friends can decide on at their meeting Thursday.
Values for space on Colonial’s main gasoline line continue to drop this week, with trades below 10 cents/gallon after reaching a high north of 18-cents earlier in the month. Softer gasoline prices in New York seems to be driving the slide as the 2 regional refiners who had been down for extended maintenance both return to service. Diesel linespace values continue to hold north of 17-cents/gallon as East Coast stocks are holding at the low end of their seasonal range while Gulf Coast inventories are holding at average levels.
Reversal coming? Yesterday we saw basis values for San Francisco spot diesel plummet to the lowest levels of the year, but then overnight the Chevron refinery in Richmond was forced to shut several units due to a power outage which could cause those differentials to quickly find a bid if the supplier is forced to become a buyer to replace that output.
Money managers continued to reduce the net length held in crude oil contracts, with both Brent and WTI seeing long liquidation and new short positions added last week. Perhaps most notable from the weekly COT report data is that funds are continuing their counter-seasonal bets on higher gasoline prices. The net length held by large speculators for RBOB is now at its highest level since Labor Day, at a time of year when prices tend to drop due to seasonal demand weakness.
Click here to download a PDF of today's TACenergy Market Talk.
After Another Black Friday Selloff Pushed Energy Futures Sharply Lower In Last Week’s Holiday-Shortened Trading
After another Black Friday selloff pushed energy futures sharply lower in last week’s Holiday-shortened trading, we’re seeing a modest bounce this morning. Since spot markets weren’t assessed Thursday or Friday, the net change for prices since Wednesday’s settlement is still down more than 6-cents for gasoline and almost 5-cents for diesel at the moment.
OPEC members are rumored to be nearing a compromise agreement that would allow African producers a higher output quota. Disagreement over that plan was blamed on the cartel delaying its meeting by 4-days last week which contributed to the heavy selling. The bigger problem may come from Russia, who announced plans last week to increase its oil output once its voluntary cut agreement ends now that price cap mechanisms are proving to be ineffective.
While an uneasy truce in Gaza held over the weekend, tensions on the Red Sea continued to escalate with the US Navy intervening to stop another hijacking and being rewarded for its efforts by having missiles fired at one of its ships.
RIN values came under heavy selling pressure Wednesday afternoon following a court overturning the EPA’s ruling to deny small refinery hardship waivers to the RFS. Those exemptions were a big reason we saw RINs drop sharply under the previous administration, and RINs were already on due to the rapid influx of RD supply this year.
More bad news for the food to fuel lobby: the White House is reportedly stalling plans to allow E15 blending year-round after conflicting studies about ethanol’s ability to actually lower carbon emissions, and fuel prices. Spot prices for ethanol in Chicago reached a 2.5 year low just ahead of the holiday.
Baker Hughes reported the US oil rig count held steady at 500 active rigs last week, while natural gas rigs increased by 3.
The first of perhaps several refining casualties caused by the rapid increase in new capacity over the past two years was reported last week. Scotland’s only refinery, which has a capacity of 150mb/day is preparing to shutter in 2025.
The CFTC’s commitment of traders report was delayed due to the holiday and will be released this afternoon.
Click here to download a PDF of today's TACenergy Market Talk.