Fear Has Taken Hold Of Energy And Equity Markets

Market TalkThursday, Dec 6 2018
DOE Week 48 - 2018 Report

Fear has taken hold of energy and equity markets overnight as the Trade Truce between the US & China is threatened by the arrest of a Chinese CFO for violating US sanctions (allegedly) and the Saudi energy minister is suggesting that there may be no OPEC deal this week.

Also weighing on markets around the world is the yield curve on US treasuries has been tightening, which is an often cited early warning indicator of a pending economic slowdown. As the charts below show, the spread between 2 & 10 year treasury rates reached its smallest discounts in more than 11 years. If you don’t remember, ask a neighbor what the economy did after 2007 and that may help explain some of the fear trade we’re witnessing this morning.

US equity futures are trading down around 1.5% so far today, while oil & product futures are down 2-3% at the moment, after being down nearly twice that amount around 4:30am. RBOB gasoline future briefly dipped to fresh 2-year lows during the overnight sell-off, while the rest of the energy complex is still holding above the lows set last week.

This week’s price action of 3 early buying sprees that fizzled into the close, followed by a 4th session that’s started with a heavy sell-off leaves the potential for a bearish continuation pattern on daily & weekly charts. If the bottom end of the past week’s range (set by November’s low trades) breaks down, there’s a strong case that the bear market will continue, and could have another 15-20% of downside based on the reverse flag formation on the charts. It’s too soon to say this formation is going to happen, as we’ll need to see WTI break (and hold) below $49 and Brent drop below $57, some $2.5/barrel lower than current levels before it’s confirmed.

Of course, even if OPEC doesn’t come to a resolution today, there’s still a chance that there could be an agreement announced tomorrow, when cartel members meet with Russia to discuss their extended output cut arrangement. If you’re wondering just how much influence has on OPEC, given that it’s not a member of the cartel, take a look at the birthday letter the OPEC secretary general sent to the Russian president 2 months ago.

The weekly status report from the Department of Energy’s EIA is due out at 11am Eastern.

CLICK HERE for a PDF of today's charts

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Energy Markets Are Ticking Modestly Higher Heading Into The Easter Weekend With Crude Oil Prices Leading The Way Up About $1.25/Barrel Early Thursday Morning

Energy markets are ticking modestly higher heading into the Easter Weekend with crude oil prices leading the way up about $1.25/barrel early Thursday morning, while gasoline prices are up around 2.5 cents and ULSD futures are about a penny.

Today is the last trading day for April HO and RBOB futures, an unusually early expiration due to the month ending on a holiday weekend. None of the pricing agencies will be active tomorrow since the NYMEX and ICE contracts are completely shut, so most rack prices published tonight will carry through Monday.

Gasoline inventories broke from tradition and snapped a 7 week decline as Gulf Coast supplies increased, more than offsetting the declines in PADDs 1, 2 and 5. With gulf coast refiners returning from maintenance and cranking out summer grade gasoline, the race is now officially on to move their excess through the rest of the country before the terminal and retail deadlines in the next two months. While PADD 3 run rates recover, PADD 2 is expected to see rates decline in the coming weeks with 2 Chicago-area refineries scheduled for planned maintenance, just a couple of weeks after BP returned from 7 weeks of unplanned repairs.

Although terminal supplies appear to be ample around the Baltimore area, we have seen linespace values for shipping gasoline on Colonial tick higher in the wake of the tragic bridge collapse as some traders seem to be making a small bet that the lack of supplemental barge resupply may keep inventories tight until the barge traffic can move once again. The only notable threat to refined product supplies is from ethanol barge traffic which will need to be replaced by truck and rail options, but so far that doesn’t seem to be impacting availability at the rack. Colonial did announce that they would delay the closure of its underutilized Baltimore north line segment that was scheduled for April 1 to May 1 out of an “abundance of caution”.

Ethanol inventories reached a 1-year high last week as output continues to hold above the seasonal range as ethanol distillers seem to be betting that expanded use of E15 blends will be enough to offset sluggish gasoline demand. A Bloomberg article this morning also highlights why soybeans are beginning to displace corn in the subsidized food to fuel race.

Flint Hills reported a Tuesday fire at its Corpus Christi West facility Wednesday, although it’s unclear if that event will have a material impact on output after an FCC unit was “stabilized” during the fire. While that facility isn’t connected to Colonial, and thus doesn’t tend to have an impact on USGC spot pricing, it is a key supplier to the San Antonio, Austin and DFW markets, so any downtime may be felt at those racks.

Meanwhile, P66 reported ongoing flaring at its Borger TX refinery due to an unknown cause. That facility narrowly avoided the worst wildfires in state history a few weeks ago but is one of the frequent fliers on the TCEQ program with upsets fairly common in recent years.

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

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Most Energy Contracts Are Ticking Lower For A 2nd Day After A Trickle Of Selling Picked Up Steam Tuesday

Most energy contracts are ticking lower for a 2nd day after a trickle of selling picked up steam Tuesday. ULSD futures are down a dime from Monday’s highs and RBOB futures are down 7 cents.

Diesel prices continue to look like the weak link in the energy chain, with futures coming within 1 point of their March lows overnight, setting up a test of the December lows around $2.48 if that resistance breaks down. Despite yesterday’s slide, RBOB futures still look bullish on the weekly charts, with a run towards the $3 mark still looking like a strong possibility in the next month or so.

The API reported crude stocks increased by more than 9 million barrels last week, while distillates were up 531,000 and gasoline stocks continued their seasonal decline falling by 4.4 million barrels. The DOE’s weekly report is due out at its normal time this morning.

RIN values have recovered to their highest levels in 2 months around $.59/RIN for D4 and D6 RINs, even though the recovery rally in corn and soybean prices that had helped lift prices off of the 4 year lows set in February has stalled out. Expectations for more biofuel production to be shut in due to weak economics with lower subsidy values seems to be encouraging the tick higher in recent weeks, although prices are still about $1/RIN lower than this time last year.

Reminder that Friday is one of only 3 annual holidays in which the Nymex is completely shut, so no prices will be published, but it’s not a federal holiday in the US so banks will be open.

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