Inflation Reaches A 13-Year High

Market TalkThursday, May 13 2021
Traders Torn As Opposing Trend Lines Converge

Colonial pipeline began restarting operations Wednesday night, and products futures dropped a nickel. Now that the headlines will move on to other stories, traders can no longer shrug off the big selloff in equity markets this week as inflation has reached a 13 year high, and will also consider the looming drop in demand as consumers will (hopefully) stop filling plastic bags with gasoline. Although the media attention will quickly fade once there are no longer lines of cars outside of gas stations to take pictures of, this situation may have changed perception of the refined fuel industry that many were prepared to cancel just a few weeks ago.  

While it may take another couple of weeks for the supply network to truly get back to “normal” as long as product starts flowing again the outages will quickly start to fade. Colonial had not been running at capacity for more than a year prior to this shutdown, so there’s room for extra supply to start moving up the line as operations ramp back up. Values for space on the main gasoline line (Line 1) went positive this week for the first time in over a year as shippers of all varieties wait in the starting blocks to begin the resupply race.

Just as we turn the page on one transportation bottleneck, another one showed up as the I-40 bridge in Memphis was forced to shut after a crack was discovered, disrupting a busy trucking corridor and promising to make an already tight freight market even worse. No word yet if consumers are lining up around Graceland to hoard Elvis memorabilia due to this temporary outage. The good news is that trucks heading to the Valero refinery in Memphis to help supplement supplies across the Southeast during the Colonial downtime don’t have to cross that bridge, but Arkansas suppliers will struggle with this situation.

The DOE’s weekly report Wednesday gave a dose of reality to those expecting demand to hit pre-COVID levels this summer. Total petroleum demand had its biggest weekly drop since stay at home orders smashed all records last year. While gasoline and diesel estimates did see minor declines, most of the huge drop came in the “other oils” category and doesn’t reflect a drop in consumer activity. 

U.S. refining capacity dropped another 50mb/day last week, as the permanent closures announced last year continue to make their way into the official numbers. The drop from 19 million barrels/day two years ago to 18 million today is the worst decline in capacity in nearly 40 years.

Adding fuel to the 200 proof fire: U.S. ethanol inventories dropped to a four-year-low last week, even though ethanol production ticked up by 25mb/day. There’s still another 50mb/day or so of production that hasn’t returned since the pandemic started.

RIN Values continue their parabolic move. D6 ethanol RINS were trading around $.36/RIN this time last year, hit $.80 to start 2021, were at $1.31 a month ago and then shot to $1.90 yesterday. D4 values are approaching the $2 mark.  With ethanol, grain and refined products appearing to be topping out and the demand for imports looking like it will subside thanks to the Colonial restart, the stage is set for a pullback, but the big question is will it be of the collapse variety that the wild RIN market has seen in years’ past or a more modest correction since the refiner obligation for the year is still unknown? 

The best cure for high prices is high prices: Eight companies – Tesla being one of them – have petitioned to be allowed to generate RINs via their electric vehicle production. While it could be years before congress can even get around to reviewing those proposals, and more years before they’d be implemented if signed into law, it’s a good reminder that at $2/RIN there will be no shortage of new producers trying to take advantage of the RFS program. 

Crying uncle: Carl Icahn’s attempt to takeover Delek via a proxy & media battle has failed and CVR announced it would distribute the Delek shares it had accumulated as a special dividend as a result. 

The last straw? The refinery FKA as Hovensa was forced to shut again this week after yet another disruption that rained oil on the surrounding neighborhoods. With the EPA already investigating the facility for permit violations, it seems like the efforts to restart this facility that was closed in 2012 may ultimately fall flat.   

Click here to download a PDF of today's TACenergy Market Talk, including all charts for the weekly DOE report.

TACenergyMarketTalk 051321

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Pivotal Week For Price Action
Market TalkTuesday, Nov 28 2023

Values For Space On Colonial’s Main Gasoline Line Continue To Drop This Week

The petroleum complex continues to search for a price floor with relatively quiet price action this week suggesting some traders are going to wait and see what OPEC and Friends can decide on at their meeting Thursday. 

Values for space on Colonial’s main gasoline line continue to drop this week, with trades below 10 cents/gallon after reaching a high north of 18-cents earlier in the month. Softer gasoline prices in New York seems to be driving the slide as the 2 regional refiners who had been down for extended maintenance both return to service. Diesel linespace values continue to hold north of 17-cents/gallon as East Coast stocks are holding at the low end of their seasonal range while Gulf Coast inventories are holding at average levels.

Reversal coming?  Yesterday we saw basis values for San Francisco spot diesel plummet to the lowest levels of the year, but then overnight the Chevron refinery in Richmond was forced to shut several units due to a power outage which could cause those differentials to quickly find a bid if the supplier is forced to become a buyer to replace that output.

Money managers continued to reduce the net length held in crude oil contracts, with both Brent and WTI seeing long liquidation and new short positions added last week. Perhaps most notable from the weekly COT report data is that funds are continuing their counter-seasonal bets on higher gasoline prices. The net length held by large speculators for RBOB is now at its highest level since Labor Day, at a time of year when prices tend to drop due to seasonal demand weakness. 

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

Pivotal Week For Price Action
Market TalkMonday, Nov 27 2023

After Another Black Friday Selloff Pushed Energy Futures Sharply Lower In Last Week’s Holiday-Shortened Trading

After another Black Friday selloff pushed energy futures sharply lower in last week’s Holiday-shortened trading, we’re seeing a modest bounce this morning. Since spot markets weren’t assessed Thursday or Friday, the net change for prices since Wednesday’s settlement is still down more than 6-cents for gasoline and almost 5-cents for diesel at the moment.

OPEC members are rumored to be nearing a compromise agreement that would allow African producers a higher output quota. Disagreement over that plan was blamed on the cartel delaying its meeting by 4-days last week which contributed to the heavy selling. The bigger problem may come from Russia, who announced plans last week to increase its oil output once its voluntary cut agreement ends now that price cap mechanisms are proving to be ineffective

While an uneasy truce in Gaza held over the weekend, tensions on the Red Sea continued to escalate with the US Navy intervening to stop another hijacking and being rewarded for its efforts by having missiles fired at one of its ships.  

RIN values came under heavy selling pressure Wednesday afternoon following a court overturning the EPA’s ruling to deny small refinery hardship waivers to the RFS. Those exemptions were a big reason we saw RINs drop sharply under the previous administration, and RINs were already on due to the rapid influx of RD supply this year.

More bad news for the food to fuel lobby: the White House is reportedly stalling plans to allow E15 blending year-round after conflicting studies about ethanol’s ability to actually lower carbon emissions, and fuel prices. Spot prices for ethanol in Chicago reached a 2.5 year low just ahead of the holiday.  

Baker Hughes reported the US oil rig count held steady at 500 active rigs last week, while natural gas rigs increased by 3. 

The first of perhaps several refining casualties caused by the rapid increase in new capacity over the past two years was reported last week. Scotland’s only refinery, which has a capacity of 150mb/day is preparing to shutter in 2025.

The CFTC’s commitment of traders report was delayed due to the holiday and will be released this afternoon.

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

Pivotal Week For Price Action
Market TalkWednesday, Nov 22 2023

Week 47 - US DOE Inventory Recap