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Have The Bulls Regained Control?

Friday, May 28 2021
Market Talk

Have the bulls regained control? Most energy contracts are poised to end the week with solid gains despite some choppy, back and forth action. The bounce after testing trend support leaves the door open to a challenge of the year’s highs as we roll into June. 

It’s the last trading day in May, so watch the July (RBN and HON) contracts for price direction today. It’s also the Friday before a holiday weekend so expect liquidity to dry up early as traders hit the road. Rack prices published tonight are expected to carry through until Tuesday, futures will trade in an abbreviated session Monday, so suppliers will reserve the right to make changes in case of price swings.   

What a difference a year makes. Last year, retail gasoline prices were below $2/gallon heading into Memorial Day weekend as most Americans were forced to stay home. This year, the EIA reports that prices are at their highest levels since 2014, which was when oil was still going for more than $100/barrel. The report highlights growing gasoline demand, reduced refinery output, and the Colonial disruption as factors in that retail price increase, but fails to note the 22 cent/gallon cost of complying with the renewable fuel standard.  

A tale of two products in on city: LA spot basis for CARBOB spec gasoline reached its highest level of this year Thursday, while CARB diesel basis reached its lowest levels in more than a year. You can look at the state’s inventory levels and make an argument for this divergence in values, as gasoline stocks in the state have reached a 12 month low, while diesel inventories are at the top of the range. A closer look at the weekly charts provided by the state’s version of the EIA however shows that the tight gasoline supplies are focused in the northern half of the state. A gasoline making unit in the LA market was forced to shut earlier this week, turning that refiner into a buyer, which seems to be the driving force behind this rally.

It’s been a huge week for climate change voting at oil producing companies. Chevron was the latest oil major to have investors vote against management in climate-related policy this week, not long after the Oracle of Omaha reportedly cut his stake in the company by half, which may well have changed the outcome of that vote.  Total meanwhile went a different route, and offered shareholders a plan to rebrand as Total Energies and shift focus towards more renewables, which was approved by more than 90% of votes.   

After facing selling pressure earlier in the week, RIN values were back on the move higher Thursday following a big bounce in corn prices. 

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