Have Fuel Prices Found A Floor?

Market TalkTuesday, Aug 9 2022
Pivotal Week For Price Action

Have fuel prices found a floor?

After dropping 60 cents in a week and a half, diesel prices have bounced 17 cents in the past 24 hours, and gasoline prices are up nearly 20 cents since bottoming out last Thursday.  While crude oil prices have also bounced, WTI is up $5/barrel from Thursday’s lows, they’re not keeping pace with the recovery in refined products, suggesting this move may be driven by spread buyers as we head into the fall maintenance & storm seasons with a refinery network that’s more vulnerable than it’s been in decades. 

There isn’t much in the way of a headline to pin the sudden reversal in diesel prices on, and in fact European natural gas prices are pulling back as inventories have recovered in recent days, which would tend to act as a drag on diesel prices. This suggests the move may be more technical in nature, as trading programs and some humans see the latest wave of selling as a good buying opportunity after the head and shoulders and descending triangle patterns that foreshadowed lower prices have now been completed. The first big test for the bulls to decide if they’re serious about this rally is to get diesel prices back north of $3.50, and gasoline prices back above $3.

The latest round of negotiations with Iran over its nuclear ambitions ended without any sign of progress, reducing the odds that Iranian oil exports will legally re-enter the world market. 

The national hurricane center still gives a 40% chance the storm moving over the Atlantic will get a name this week, and the long range forecasts suggest there will be more storms coming soon as the hurricane season reaches its peak a month from now.

HF Sinclair proved that the previous year was a great time to be buying refineries, joining its US peers reporting huge profits for the 2nd quarter. While the company’s newly acquired facilities netted nearly $30/barrel after operating costs, the renewable diesel operations showed heavy losses for the quarter, suggesting that turning soybeans into motorfuel may not be the field of dreams many have been hoping for, even with nearly $5/gallon in various government tax credits and subsidies and diesel prices at elevated levels. 

Speaking of which, the spending bill passed in the Senate this weekend includes the extension of several existing biofuel credits, and the addition of several new credits to encourage more production. One detail that’s already expected to have unforeseen consequences is that Sustainable Aviation Fuels (SAF) will get $.25-$.75/gallon more credits than Renewable Diesel, which will likely mean a shift by some producers away from on-road fuels given the limited feedstocks available to make fuel out of food.

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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.

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Market TalkTuesday, Mar 26 2024

Refined Products Seeing Small Losses Of Around A Penny While Crude Oil Contracts Hover Just Above Break Even

Energy futures are taking a breather to start Tuesday’s trading, with refined products seeing small losses of around a penny while crude oil contracts hover just above break even.

No new news on either the Red Sea shipping or Russian Refining attacks this morning, so Cocoa prices seem to be taking over the commodity headlines while energy markets wait on their next big move.

RBOB gasoline futures set a new 6-month high Monday at $2.7711, which leaves the door open on the weekly charts for the spring rally to continue. A run at the $3 mark is certainly possible in the next few weeks before the typical seasonal price peak is set just before the start of driving season.

A container ship lost power and crashed into the Francis Scott Key bridge in Baltimore this morning, causing a devastating collapse. While cargo shipping into the area will no doubt be impacted by this event, fuel supplies are unlikely to see any notable change since the 9 fuel terminals in Baltimore are primarily supplied by Colonial pipeline. Barges from Philadelphia refineries do supplement Baltimore supplies at times, and those vessel flows will be impacted at least until rescue operations are completed and the bridge sections removed from the waterway. That said, since shipping up from the Gulf Coast via Colonial is generally cheaper than shipping an NY Harbor-priced barrel south, the amount of supply disrupted by this event will be minimal.

While we’re still waiting on the official forecasts for the Atlantic Hurricane season, early reports continue to suggest that we could be in for a very busy year due to warm water temperatures and a forming La Nina pattern.

Dallas meanwhile is preparing for a different sort of disruption, with city officials encouraging companies to let employees work from home during the solar eclipse on April 8th as metroplex traffic is expected to surge. While some isolated fuel outages are certainly possible if people start panic buying gasoline they don’t need, there’s no reason to expect any widespread impact from the demand spike.

Today’s interesting read: Why AI requires a staggering amount of electricity and may create supply competition for EVs that will end up benefitting fossil fuels.

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