Equity Markets Rallied To Fresh Record Highs Wednesday After The FED Increased Its GDP Estimates For The US

Market TalkThursday, Mar 21 2024
Pivotal Week For Price Action

Energy futures are moving modestly lower for a 2nd day as the attacks on Russian refineries seem to have subsided. ULSD futures are once again leading the move lower and are now down more than 12 cents since Monday, while RBOB and WTI are still acting like this pullback is just a brief consolidation during a larger move higher.

Equity markets rallied to fresh record highs Wednesday after the FED increased its GDP estimates for the US, and stuck to its outlook that it would likely cut interest rates 3 times later in the year. Even though the correlation between equity price moves and gasoline and crude oil prices have strengthened lately, and those prices did end the session off the lows, it doesn’t seem like the enthusiasm in the stock market is carrying over as much into the energy arena as it’s done in years past. ULSD prices meanwhile continue to have essentially no relationship to moves in stocks and continue to look weak even though the rest of the complex looks like it wants to push higher for a real spring rally.

The DOE’s weekly report echoed the sentiment that gasoline and oil prices have some momentum while diesel has plenty of headwinds.

Gasoline inventories continued to follow their seasonal pattern and declined for a 7th straight week as we pass the half-way point of the spring RVP transition. While domestic demand for gasoline is average-at-best, export demand for gasoline remains strong at north of 1 million barrels/day which is helping keep inventories in check and preventing margin erosion for refiners. Roughly half of all US gasoline exports go to Mexico, who despite outlandish claims by its President is nowhere near reaching refined fuel sovereignty based on the actual data since its existing refineries are operating at less than 50% of capacity (vs 90% for the US) and its new Dos Bocas refinery still isn’t producing fuel despite many claims to the contrary.

Diesel inventories increased for a 2nd week, with low PADD 1 stocks probably the only thing preventing a more dramatic drop in futures. PADD 3 diesel inventories are above average, PADD 4 is close to a record high and PADD 5 stocks are severely understated due to Renewable Diesel not showing up in the stats. PADD 2 inventories did pull back again from near record levels, but with BP whiting back up to full rates, that trend may soon reverse. Exports have not yet come to the rescue of sluggish domestic diesel demand, but that’s expected to change in coming weeks as international buyers have to replace barrels that Russia has lost to the drone attacks on its refineries.

Speaking of which, the expected shift of Russian exports from refined product to crude oil thanks to the successful drone campaign damaging facilities is already seeing logistical complications due to the change in tankers needed, and the sanctions on the fleet. While there’s no doubt the big trading houses will eventually find loopholes to work around this issue like they did in 2022, but those changes will take time.

PADD 2 refinery runs show the impact of the BP restart, with throughput rates going from below average to above the 5-year range in just one week. PADD 3 run rates dipped after 4 straight weeks of gains as another rash of unplanned upsets kept the Gulf Coast total throughput in check.

Natural Gas to gasoline is alive. Next Wave Energy announced the start of commercial operations of its Houston facility that’s been in the works for more than 5 years. The plant turns natural gas liquids into 96 octane alkylate that can then be further blended into the gasoline pool, particularly the premium grades. Next up the company is looking at options to make renewable diesel and SAF at the facility, but they may want to wait a couple years on that one given the current challenging economics of renewables.

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

Market Talk Update 3.21.2024

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Pivotal Week For Price Action
Market TalkFriday, May 17 2024

The Recovery Rally In Energy Markets Continues For A 3rd Day

The recovery rally in energy markets continues for a 3rd day with refined product futures both up more than a dime off of the multi-month lows we saw Wednesday morning. The DJIA broke 40,000 for the first time ever Thursday, and while it pulled back yesterday, US equity futures are suggesting the market will open north of that mark this morning, adding to the sends of optimism in the market.

Despite the bounce in the back half of the week, the weekly charts for both RBOB and ULSD are still painting a bearish outlook with a lower high and lower low set this week unless the early rally this morning can pick up steam in the afternoon. It does seem like the cycle of liquidation from hedge funds has ended however, so it would appear to be less likely that we’ll see another test of technical support near term after this bounce.

Ukraine hit another Russian refinery with a drone strike overnight, sparking a fire at Rosneft’s 240mb/day Tuapse facility on the black sea. That plant was one of the first to be struck by Ukrainian drones back in January and had just completed repairs from that strike in April. The attack was just one part of the largest drone attack to date on Russian energy infrastructure overnight, with more than 100 drones targeting power plants, fuel terminals and two different ports on the Black Sea. I guess that means Ukraine continues to politely ignore the White House request to stop blowing up energy infrastructure in Russia.

Elsewhere in the world where lots of things are being blown up: Several reports of a drone attack in Israel’s largest refining complex (just under 200kbd) made the rounds Thursday, although it remains unclear how much of that is propaganda by the attackers and if any impact was made on production.

The LA market had 2 different refinery upsets Thursday. Marathon reported an upset at the Carson section of its Los Angeles refinery in the morning (the Carson facility was combined with the Wilmington refinery in 2019 and now reports as a single unit to the state, but separately to the AQMD) and Chevron noted a “planned” flaring event Thursday afternoon. Diesel basis values in the region jumped 6 cents during the day. Chicago diesel basis also staged a recovery rally after differentials dropped past a 30 cent discount to futures earlier in the week, pushing wholesale values briefly below $2.10/gallon.

So far there haven’t been any reports of refinery disruptions from the severe weather than swept across the Houston area Thursday. Valero did report a weather-related upset at its Mckee refinery in the TX panhandle, although it appears they avoided having to take any units offline due to that event.

The Panama Canal Authority announced it was increasing its daily ship transit level to 31 from 24 as water levels in the region have recovered following more than a year of restrictions. That’s still lower than the 39 ships/day rate at the peak in 2021, but far better than the low of 18 ships per day that choked transit last year.

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

Pivotal Week For Price Action
Market TalkThursday, May 16 2024

Energy Prices Found A Temporary Floor After Hitting New Multi-Month Lows Wednesday

Energy prices found a temporary floor after hitting new multi-month lows Wednesday morning as a rally to record highs in US equity markets and a modestly bullish DOE report both seemed to encourage buyers to step back into the ring.

RBOB and ULSD futures both bounced more than 6 cents off of their morning lows, following a CPI report that eased inflation fears and boosted hopes for the stock market’s obsession of the FED cutting interest rates. Even though the correlation between energy prices and equities and currencies has been weak lately, the spillover effect on the bidding was clear from the timing of the moves Wednesday.

The DOE’s weekly report seemed to add to the optimism seen in equity markets as healthy increases in the government’s demand estimates kept product inventories from building despite increased refinery runs.

PADD 3 diesel stocks dropped after large increases in each of the past 3 weeks pushed inventories from the low end of their seasonal range to average levels. PADD 2 inventories remain well above average which helps explain the slump in mid-continent basis values over the past week. Diesel demand showed a nice recovery on the week and would actually be above the 5 year average if the 5% or so of US consumption that’s transitioned to RD was included in these figures.

Gasoline inventories are following typical seasonal patterns except on the West Coast where a surge in imports helped inventories recover for a 3rd straight week following April’s big basis rally.

Refiners for the most part are also following the seasonal script, ramping up output as we approach the peak driving demand season which unofficially kicks off in 10 days. PADD 2 refiners didn’t seem to be learning any lessons from last year’s basis collapse and rapidly increased run rates last week, which is another contributor to the weakness in midwestern cash markets. One difference this year for PADD 2 refiners is the new Transmountain pipeline system has eroded some of their buying advantage for Canadian crude grades, although those spreads so far haven’t shrunk as much as some had feared.

Meanwhile, wildfires are threatening Canada’s largest oil sands hub Ft. McMurray Alberta, and more than 6,000 people have been forced to evacuate the area. So far no production disruptions have been reported, but you may recall that fires in this region shut in more than 1 million barrels/day of production in 2016, which helped oil prices recover from their slump below $30/barrel.

California’s Air Resources Board announced it was indefinitely delaying its latest California Carbon Allowance (CCA) auction – in the middle of the auction - due to technical difficulties, with no word yet from the agency when bidders’ security payments will be returned, which is pretty much a nice microcosm for the entire Cap & Trade program those credits enable.

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, May 15 2024

Week 19 - US DOE Inventory Recap