Gasoline Prices Touch Fresh Three-Year High
The energy complex is seeing a modest round of selling Monday morning, after gasoline prices touched a fresh three year high overnight. Diesel prices were leading the move lower initially, after ULSD futures failed to break above the highs set a week ago, and signaling that buyers may finally be losing their conviction after one of the largest rallies on record. We’ll need to see another 5-6 cents of losses before the bullish trend line is threatened however, and with the recent buy-the-dip pattern well established, it’s too soon to see this as more than just another small correction.
RBOB futures broke through the highs from 2019 Friday morning, ending the chance of a double top pattern at that level, and set a new, three year high at $2.17 before pulling back in the past few hours. The next big test on the gasoline charts is the 2018 high of $2.2855, and after that we’d need to 2014 when prices were still in the $3 range to find major chart resistance. Given the spare oil and refining capacity globally, it seems unlikely that we could make a serious run at the $3 mark, but then again, when priced dipped below $1 November 1 it seemed unlikely we’d see prices double over the next 4.5 months.
No major developments in the refinery restart races. Diesel remains tight across large portions of the southern U.S., while regular unleaded is generally well supplied. One complication popped up Friday as Colonial pipeline reported that the slower flow rates caused by refinery cuts along the Gulf Coast may mean shippers in the South East may struggle to turn their tanks ahead of the spring RVP transition.
RIN prices continued their run higher Friday, with both the D4 and D6 contracts trading near all-time highs north of $1.40. Ethanol prices have quietly joined the rally reaching new three year highs, as strong export volumes and corn prices both add to the bullish tone set by gasoline prices. One thing this new RIN rally may encourage is for E15 blends to finally find some momentum in locations capable of handling them since there’s a strong financial incentive to blend more ethanol given the big RIN discounts at play.
OPEC increased its global GDP and oil demand estimates in its March oil market report, thanks in large part to the viral spread of fiscal stimulus around the world, in addition to vaccine rollouts that are beginning to get people moving again. The cartel’s output dropped by 647mb/day during the month, as Saudi Arabia made good on its pledge to cut around one million barrels/day of output, which allowed other country’s to increase their output and take advantage of the higher prices. Even though the OPEC & friends agreement was not changed at the last meeting, Saudi Arabia has no obligation to continue that extra million barrel cut, and the timing with which it brings those barrels back online could be pivotal for prices across the entire energy complex.
In other non-restart refinery news today: More bad news for the Limetree Bay (FKA Hovensa) refinery as it comes under more scrutiny from the EPA, this time for a February disruption that polluted water in neighboring communities. Neste has announced it has picked the port of Rotterdam as the site of a new renewable fuel production facility it intends to build, but won’t have more detailed plans on the exact location or timing until the end of the year.
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View AllEnergy Markets Are Ticking Modestly Higher This Morning But Remain Well Off The Highs Set Early Thursday
Energy markets are ticking modestly higher this morning but remain well off the highs set early Thursday following the reports that Russia was temporarily banning most refined product exports.
The law of government intervention and unintended consequences: Russian officials claim the export ban is an effort to promote market stability, and right on cue, its gasoline prices plummeted a not-so-stable 10% following the news.
There’s a saying that bull markets don’t end due to bad news, they end when the market stops rallying on good news. It’s possible that if ULSD futures continue lower after failing to sustain yesterday’s rally, or this morning’s, we could be seeing the end of the most recent bull run. That said, it’s still much too soon to call the top here, particularly with a steepening forward curve leaving prices susceptible to a squeeze, and the winter-demand months still ahead of us. Short term we need to see ULSD hold above $3.30 next week to avoid breaking its weekly trend line.
The sell-off in RIN values picked up steam Thursday, with 2023 D4 and D6 values dropping to the $1.02 range before finally finding a bid later in the session and ending the day around $1.07.
Tropical Storm Ophelia is expected to be named today, before making landfall on the North Carolina coast tomorrow. This isn’t a major storm, and there aren’t any refineries in its path, so it’s unlikely to do much to disrupt supply, but it will dump heavy rain several of the major East Coast markets so it will likely hamper demand through the weekend. The other storm system being tracked by the NHC is now given 90% odds of being named next week, but its predicted path has shifted north as it moves across the Atlantic, which suggests it is more likely to stay out to sea like Nigel did than threaten either the Gulf or East Coasts.
Exxon reported an upset at its Baytown refinery that’s been ongoing for the past 24 hours. It’s still unclear which units are impacted by this event, and whether or not it will have meaningful impacts on output. Total’s Pt Arthur facility also reported an upset yesterday, but that event lasted less than 90 minutes. Like most upsets in the region recently, traders seem to be shrugging off the news with gulf coast basis values not moving much.
Click here to download a PDF of today's TACenergy Market Talk.
The Yo-Yo Action In Diesel Continues With Each Day Alternating Between Big Gains And Big Losses So Far This Week
The yo-yo action in diesel continues with each day alternating between big gains and big losses so far this week. Today’s 11-cent rally is being blamed on reports that Russia is cutting exports of refined products effective immediately. It’s been a while since Russian sabre rattling has driven a noticeable price move in energy futures, after being a common occurrence at the start of the war. Just like tweets from our prior President however, these types of announcements seem to have a diminishing shelf-life, particularly given how the industry has adapted to the change in Russian export flows, so don’t be surprised if the early rally loses steam later today.
The announcement also helped gasoline prices rally 5-cents off of their overnight lows, and cling to modest gains just above a penny in the early going. Before the announcement, RBOB futures were poised for a 5th straight day of losses.
IF the export ban lasts, that would be good news for US refiners that have seen their buyers in south American countries – most notably Brazil – reduce their purchases in favor of discounted barrels from Russia this year.
US refinery runs dropped below year-ago levels for the first time in 6 weeks, with PADDS 1, 2 and 3 all seeing large declines at the start of a busy fall maintenance schedule. Oil inventories continued to decline, despite the drop-in run rates and a big increase in the adjustment factor as oil exports surged back north of 5 million barrels/day. Keep in mind that as recently as 2011 the US only produced 5 million barrels of oil every day, and exports were mostly banned until 2016, so to be sending this many barrels overseas is truly a game changer for the global market.
Chicken or the egg? Cushing OK oil stocks dropped below year-ago levels for the first time since January last week, which may be caused by the return of backwardation incenting shippers to lower inventory levels, the shift to new WTI Midland and Houston contracts as the export market expands. Of course, the low inventory levels are also blamed for causing the backwardation in crude oil prices, and the shift to an export market may keep inventories at the NYMEX hub lower for longer as fewer shippers want to go inland with their barrels.
Refined product inventories remain near the bottom end of their seasonal ranges, with a healthy recovery in demand after last week’s holiday hangover helping keep stocks in check. The biggest mover was a large jump in PADD 5 distillates, which was foreshadowed by the 30 cent drop in basis values the day prior. The big story for gasoline on the week was a surge in exports to the highest level of the year, which is helping keep inventories relatively tight despite the driving season having ended 2 weeks ago.
As expected, the FED held rates yesterday, but the open market committee also included a note that they expected to raise rates one more time this year, which sparked a selloff in equity markets that trickled over into energy prices Wednesday afternoon. The correlation between energy and equities has been non-existent of late, and already this morning we’re seeing products up despite equities pointing lower, so it doesn’t look like the FOMC announcement will have a lasting impact on fuel prices this time around.