Four Month-Old Bullish Trend Alive And Well
Energy futures were bouncing back early Tuesday morning after their first day of selling in a week wiped out the new year + highs set Sunday night. The upward momentum seems to have stalled out however, as product gains have been slashed and WTI has ticked into the red in the past few minutes.
The four month old bullish trend is alive and well, and the bulls will argue that OPEC’s decision to hold output cuts even though prices are higher now than they were pre-COVID, coupled with the vaccine allowing economies to restart should keep prices moving higher. Bears will argue that after nearly doubling prices since November 1, this rally has outkicked its coverage, consumption will need years to return to pre-COVID levels, and rising fuel prices will not help economic activity recover.
If we see yesterday’s overnight highs broken later this week, the bulls look to have clear sailing on the charts for another 5-10% of upside, while the risk for a real correction remains as long as we stay below those levels.
Stocks are pointing higher and the U.S. dollar is trading lower, both of which will typically help encourage higher energy prices, even though the correlations between those asset classes has weakened in recent weeks.
It’s two steps forward, one step back in the great refinery restart races with new units coming online daily, while others are failing in their restart attempts and having to push back their forecasted resupply dates.
While the bumpy recovery continues, a new problem has started to emerge: oversupply of regular gasoline grades in several markets are blocking shipments of diesel and premium gasoline in the pipelines, and exacerbating those shortages. This phenomenon was also prevalent for a few weeks last spring when COVID shutdowns hammered gasoline demand while distillate consumption held relatively strong, and will continue to give suppliers headaches for at least another week or two. Since Colonial pipeline operates separate mainlines for gasoline and distillates, this phenomenon “should” not spread to the East Coast, and the push stock needed to get those lines back on schedule are expected in the next week or two.
The EIA this morning highlighted the record decline in U.S. Oil output in 2020, with the Gulf of Mexico and North Dakota leading the production declines. New Mexico was one of the few states that saw an increase in oil output as production in the western half of the Permian heated up pre-COVID. While most production is expected to increase this year thanks to the rapid recovery in prices, New Mexico is expected to see declines soon due to the expected restrictions on Federal Lands.
Two interesting reads from Reuters, both of which suggest the food vs. fuel debate is destined to be back in the headlines this year.
The coming feedstock wars as refiners race to make more renewable diesel.
The boom in U.S. Ethanol Exports heading to China. This surge in exports could help explain some of the recent rally in D6 RIN prices, as exporters are required to retire RINs within one month of the export event.
Click here to download a comprehensive PDF of today's TACenergy Market Talk graphs.
Latest Posts
Gasoline Futures Are Leading The Way Lower This Morning
The Sell-Off Continues In Energy Markets, RBOB Gasoline Futures Are Now Down Nearly 13 Cents In The Past Two Days
Week 15 - US DOE Inventory Recap
Prices To Lease Space On Colonial’s Main Gasoline Line Continue To Rally This Week
Social Media
News & Views
View All
Gasoline Futures Are Leading The Way Lower This Morning
It was a volatile night for markets around the world as Israel reportedly launched a direct strike against Iran. Many global markets, from equities to currencies to commodities saw big swings as traders initially braced for the worst, then reversed course rapidly once Iran indicated that it was not planning to retaliate. Refined products spiked following the initial reports, with ULSD futures up 11 cents and RBOB up 7 at their highest, only to reverse to losses this morning. Equities saw similar moves in reverse overnight as a flight to safety trade soon gave way to a sigh of relief recovery.
Gasoline futures are leading the way lower this morning, adding to the argument that we may have seen the spring peak in prices a week ago, unless some actual disruption pops up in the coming weeks. The longer term up-trend is still intact and sets a near-term target to the downside roughly 9 cents below current values. ULSD meanwhile is just a nickel away from setting new lows for the year, which would open up a technical trap door for prices to slide another 30 cents as we move towards summer.
A Reuters report this morning suggests that the EPA is ready to announce another temporary waiver of smog-prevention rules that will allow E15 sales this summer as political winds continue to prove stronger than any legitimate environmental agenda. RIN prices had stabilized around 45 cents/RIN for D4 and D6 credits this week and are already trading a penny lower following this report.
Delek’s Big Spring refinery reported maintenance on an FCC unit that would require 3 days of work. That facility, along with several others across TX, have had numerous issues ever since the deep freeze events in 2021 and 2024 did widespread damage. Meanwhile, overnight storms across the Midwest caused at least one terminal to be knocked offline in the St. Louis area, but so far no refinery upsets have been reported.
Meanwhile, in Russia: Refiners are apparently installing anti-drone nets to protect their facilities since apparently their sling shots stopped working.
Click here to download a PDF of today's TACenergy Market Talk.
The Sell-Off Continues In Energy Markets, RBOB Gasoline Futures Are Now Down Nearly 13 Cents In The Past Two Days
The sell-off continues in energy markets. RBOB gasoline futures are now down nearly 13 cents in the past two days, and have fallen 16 cents from a week ago, leading to questions about whether or not we’ve seen the seasonal peak in gasoline prices. ULSD futures are also coming under heavy selling pressure, dropping 15 cents so far this week and are trading at their lowest level since January 3rd.
The drop on the weekly chart certainly takes away the upside momentum for gasoline that still favored a run at the $3 mark just a few days ago, but the longer term up-trend that helped propel a 90-cent increase since mid-December is still intact as long as prices stay above the $2.60 mark for the next week. If diesel prices break below $2.50 there’s a strong possibility that we see another 30 cent price drop in the next couple of weeks.
An unwind of long positions after Iran’s attack on Israel was swatted out of the sky without further escalation (so far anyway) and reports that Russia is resuming refinery runs, both seeming to be contributing factors to the sharp pullback in prices.
Along with the uncertainty about where the next attacks may or may not occur, and if they will have any meaningful impact on supply, come no shortage of rumors about potential SPR releases or how OPEC might respond to the crisis. The only thing that’s certain at this point, is that there’s much more spare capacity for both oil production and refining now than there was 2 years ago, which seems to be helping keep a lid on prices despite so much tension.
In addition, for those that remember the chaos in oil markets 50 years ago sparked by similar events in and around Israel, read this note from the NY Times on why things are different this time around.
The DOE’s weekly status report was largely ignored in the midst of the big sell-off Wednesday, with few noteworthy items in the report.
Diesel demand did see a strong recovery from last week’s throwaway figure that proves the vulnerability of the weekly estimates, particularly the week after a holiday, but that did nothing to slow the sell-off in ULSD futures.
Perhaps the biggest next of the week was that the agency made its seasonal changes to nameplate refining capacity as facilities emerged from their spring maintenance.
PADD 2 saw an increase of 36mb/day, and PADD 3 increased by 72mb/day, both of which set new records for regional capacity. PADD 5 meanwhile continued its slow-motion decline, losing another 30mb/day of capacity as California’s war of attrition against the industry continues. It’s worth noting that given the glacial pace of EIA reporting on the topic, we’re unlikely to see the impact of Rodeo’s conversion in the official numbers until next year.
Speaking of which, if you believe the PADD 5 diesel chart below that suggests the region is running out of the fuel, when in fact there’s an excess in most local markets, you haven’t been paying attention. Gasoline inventories on the West Coast however do appear consistent with reality as less refining output and a lack of resupply options both continue to create headaches for suppliers.