Gasoline Prices Touch Fresh Three-Year High

Market TalkMonday, Mar 15 2021
Pivotal Week For Price Action

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. 

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

TACenergy MarketTalk 031521

News & Views

View All
Pivotal Week For Price Action
Market TalkFriday, Apr 12 2024

Charts Continue To Favor A Push Towards The $3 Mark For Gasoline, While Diesel Prices May Need To Be Dragged Along For The Ride

Energy prices are rallying once again with the expected Iranian attack on Israel over the weekend appearing to be the catalyst for the move. RBOB gasoline futures are leading the way once again, trading up more than a nickel on the day to reach a fresh 7 month high at $2.8280. Charts continue to favor a push towards the $3 mark for gasoline, while diesel prices may need to be dragged along for the ride.

So far it appears that Motiva Pt. Arthur is the only refinery that experienced a noteworthy upset from the storms that swept across the southern half of the country this week. Those storms also delayed the first round of the Masters, which matters more to most traders this week than the refinery upset.

Chevron’s El Segundo refinery in the LA-area reported an unplanned flaring event Thursday, but the big moves once again came from the San Francisco spot market that saw diesel prices rally sharply to 25 cent premiums to futures. The Bay Area now commands the highest prices for spot gasoline and diesel as the conversion of 1 out of the 4 remaining refineries to renewable output is not-surprisingly creating disruptions in the supply chain.

RIN values dropped back below the 50-cent mark, after the recovery rally ran out of steam last week. The EPA is facing numerous legal challenges on the RFS and other policies, and now half of the US states are challenging the agency’s new rule restricting soot emissions. That lack of clarity on what the law actually is or may be is having widespread impacts on environmental credits around the world and makes enforcement of such policies a bit of a joke. Speaking of which, the EPA did just fine a South Carolina company $2.8 million and require that it buy and retire 9 million RINs for improper reporting from 2013-2019. The cost of those RINs now is about 1/3 of what it was this time last year, so slow playing the process definitely appears to have paid off in this case.

The IEA continues to do its best to downplay global demand for petroleum, once again reducing its economic outlook in its Monthly Report even though the EIA and OPEC continue to show growth, and the IEA’s own data shows “Robust” activity in the first quarter of the year. The IEA has come under fire from US lawmakers for changing its priorities from promoting energy security, to becoming a cheerleader for energy transition at the expense of reality.

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

Pivotal Week For Price Action
Market TalkThursday, Apr 11 2024

Diesel Prices Continue To Be The Weak Link In The Energy Chain

Energy prices are ticking modestly lower this morning, despite warnings from the US that an Iranian attack on Israeli interest is “imminent” and reports of weather induced refinery outages, as demand fears seem to be outweighing supply fears temporarily. Diesel prices continue to be the weak link in the energy chain with both the DOE and OPEC reports giving the diesel bears reason to believe lower prices are coming.

The March PPI report showed a lower inflation reading for producers than the Consumer Price Index report, leading to an immediate bounce in equity futures after the big wave of selling we saw yesterday. To put the CPI impact in perspective, a week ago Fed Fund futures were pricing in an 80% chance of an interest rate cut by the FED’s July 31 meeting, and today those odds have shrunk to 40% according to the CME’s FedWatch tool.

OPEC’s monthly oil market report held a steady outlook for economic growth and oil demand from last month’s report, noting the healthy momentum of economic activity in the US. The cartel’s outlook also highlighted significant product stock increases last month that weighed heavily on refining margins, particularly for diesel. Given the US focus on ULSD futures that are deliverable on the East Coast, which continues to have relatively tight supply for diesel, it’s easy to overlook how quickly Asian markets have gotten long on distillates unless of course you’re struggling through the slog of excess supply in numerous west coast markets these days. The OPEC report noted this in a few different ways, including a 33% decline in Chinese product exports as the region simply no longer needs its excess. The cartel’s oil output held steady during March with only small changes among the countries as they hold to their output cut agreements.

If you believe the DOE’s diesel demand estimates, there’s reason to be concerned about domestic consumption after a 2nd straight week of big declines. The current estimate below 3 million barrels/day is something we typically only see the week after Christmas when many businesses shut their doors. We know the DOE’s figures are missing about 5% of total demand due to Renewable Diesel not being included in the weekly stats, and it’s common to see a drop the week after a holiday, but to lose more than a million barrels/day of consumption in just 2 weeks will keep some refiners on edge.

Most PADDs continue to follow their seasonal trends on gasoline with 1 and 2 still in their normal draw down period, while PADD 3 is rebuilding inventories faster than normal following the transition to summer grade products. That rapid influx of inventory in PADD 3 despite robust export activity helps explain the spike in premiums to ship barrels north on Colonial over the past 2 weeks. Gasoline also saw a sizeable drop in its weekly demand estimate, but given the holiday hangover effect, and the fact that it’s in line with the past 2 years, there’s not as much to be concerned about with that figure. While most of the activity happens in PADDs 1-3, the biggest disconnect is coming in PADDs 4 and 5, with gasoline prices in some Colorado markets being sold 50 cents or more below futures, while prices in some California markets are approaching 90 cents above futures.

Severe weather sweeping across the southern US knocked several units offline at Motiva’s Pt Arthur plant (the country’s largest refinery) Wednesday, and it seems likely that Louisiana refineries will see some disruption from the storm that spawned tornadoes close to the Mississippi River refining hub. So far cash markets haven’t reacted much, but they’ll probably need more time to see what damage may have occurred.

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, Apr 10 2024

Week 14 - US DOE Inventory Recap