It’s Been A Choppy Trading Session For Energy Futures With Overnight Gains Turning Into Morning Losses
It’s been a choppy trading session for energy futures with overnight gains turning into morning losses, and signs of a potential market top flashing even as new records are being set. RBOB gasoline futures and several US spot markets set fresh records on Monday, meaning new record highs for retail prices are coming. While that’s bad news for consumers, and will no doubt continue to dominate headlines near term, there’s a divergence with diesel prices that could be bringing relief.
Monday was a relatively quiet session for NYH ULSD futures, which traded down less than 1.5 cents, but a big day for NYH diesel spot markets that dropped more than 56 cents on the day. A big drop in NYH was inevitable as those values were trading $1/gallon or more than any other US region, and typically once a bubble like that bursts it’s a one way trip lower so don’t be surprised to see more downside now that sellers have emerged.
Just as the backwardation in ULSD, and the spread to NYH, have started their return trip to reality, gasoline spreads have decided to smash records. The Prompt month futures spread for RBOB reached its highest level since the wake of Hurricane Harvey yesterday, and is actually more impressive given that this backwardation doesn’t include the winter RVP discount like that one did. Even more impressive, June RBOB futures are trading $1.15 above January, which is roughly 60 cents higher than the record prior to this year.
The premium for barrels in NYH has sent values for shipping product along Colonial to their highest levels of the year, although as we saw with diesel prices the past couple of months, the backwardation in the market makes this a challenge. The difference between gasoline and diesel however is that the export bid for gasoline is not nearly as strong, so sending barrels north on Colonial seems to make the most sense for those with space.
With supply options in the slim to none category globally the major question is how soon will the record high prices start hitting fuel demand? Rising fuel prices are already being cited as a headwind in Wall Street earnings reports, and we’ll have to wait and see if main street reacts with staycations this summer, or if they’ll pay up to get out after 2 years of travel disruptions.
Click here to download a PDF of today's TACenergy Market Talk.
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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.
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.