Let The Madness Begin

Market TalkFriday, Mar 19 2021
Pivotal Week For Price Action

Let the Madness begin. 

This is what it looks like when a market has one of the strongest rallies in its history, outkicks its coverage, and then finally breaks its upward trend. Most petroleum contracts had their biggest single day sell-off in 11 months (you know, since the day oil prices went to minus $40/barrel) after chart support finally gave way and created a snowball effect of selling.  

Gasoline prices are down 26 cents from the highs set Sunday night, and distillates are down more than 20 cents, with both appearing to have more room to fall over the next week based purely on the charts. The next stopping point on the weekly chart for RBOB looks to be in the $1.80 range, while ULSD looks like it could make a run at $1.60 before reaching its next cluster of support, which held prices for several weeks back in January.

There are also some fundamental reasons for the drop, as more signs of healing emerge from refining country and supply allocations begin to ease across much of the south. The pipeline spill in New Jersey this week is still creating headaches for physical supply in the immediate area, but that has little bearing on futures prices, and the disruption appears to be contained to a few local terminals.

Chicken or the egg? RIN values dropped 12 cents for both D4 and D6 contracts, getting close to the moves in both gasoline and diesel on the day. Some will suggest the sell-off in RINs happened before the move in refined products, suggesting some of the unwind may have been reversing the Stronger RIN/Stronger Crack spread needed trade that’s been prevalent over the past month. 

Today’s interesting read: A recap of the lawsuit scheduled to go before the supreme court this summer that may well determine the long-term direction of RIN prices. 

Today’s other (slightly less) interesting read: An EIA note detailing why jet fuel consumption in the US will take a decade to recover, even though air travel should pick up soon.

If you’re wanting to get something done today, make sure you get it done by noon, since once the Tournament starts, these markets tend to go quiet in a hurry.

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

TACenergy MarketTalk 031921

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Market TalkTuesday, Jun 18 2024

Prices Moving Higher Today As Market Prepares For Juneteenth Holiday

Refined products are ticking higher for a 2nd day, with RBOB gasoline futures hitting their highest levels of the month at $2.46 overnight, while WTI climbed back above the $80 mark for the first time in 3 weeks.

Markets will be mostly closed tomorrow for the Juneteenth holiday. Spot markets won’t be assessed so most U.S. traders will be taking the day off, even though Nymex contracts will trade in the morning. While rack prices can always change, expect most to stay static tonight through Thursday.

Risk-taking appears to be back in style to start the week, with the S&P 500 and Nasdaq both reaching fresh record highs as big tech stocks continue to lead the way, while the DJIA bellwether index remains well off of the record high it set a month ago. The correlation between daily price moves in energy and equity markets has been weak for most of the year, but the enthusiasm of broad buying across asset classes so far this week has the markings of a classic risk-on rally, although it’s noteworthy the moves across the board are modest, suggesting the exuberance may be slightly less irrational than it was during the dot com bubble. We shall see.

While the still unnamed storm in the SW Gulf of Mexico won’t be a direct threat to the U.S. coastlines, it is a very large system that’s bringing rain to large parts of Texas (even DFW is expected to get thunderstorms from this system) and coastal flood warnings are in effect across the entire coastline of the state, stretching east into Louisiana.

There is a 2nd potential system the NHC gives 20% odds of developing in the same area as the current “Potential Cyclone” over the next week, while the other disturbance near the Bahamas is given 20% odds of being named as it heads towards the SE U.S. coast.

Ukraine’s drones continue to hit Russian energy assets, with a fuel export facility at the Azov seaport set ablaze overnight. Those attacks come amidst Ukrainian forces repelling Russia’s latest offensive near Kharkiv now that U.S. weapons have finally arrived, forcing the Russian president to float new peace options and visit military powerhouse North Korea to purchase more arms.

The CFTC reached a $55 million settlement with Trafigura over 3 separate charges the trading house A) manipulated gasoline markets by “misappropriating” material information from a counterparty in Mexico (not named, but believed to be Pemex), B) gamed the Platts Window to boost a trading position in 2017, C) coerced employees into not cooperating with investigations into the company’s manipulative practices by CFTC and other law enforcement.

Trafigura did not admit fault as part of the settlement, but did state the company had “voluntarily undertaken significant steps to enhance its compliance program…” For anyone who watched the games being played in the Platts window over the past two decades, it seems they may have got off easy. This latest settlement comes just a couple of months after the company was forced to pay $127 million in fines over bribery charges and makes you wonder if there are more charges to come.

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

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Market TalkMonday, Jun 17 2024

CFTC Commitment Of Traders Report Confirmed Short Covering Was Pushing Up Pricing

It’s a quiet start to the week for energy contracts with modest gains of around a penny in the early going for refined products, while crude oil contracts are up less than 50 cents/barrel.

Houthi Rebels continue to attack ships transiting the Red Sea, with the U.S. Navy forced to rescue the crew from 2 different cargo ships that were struck over the past week.

China’s refineries slowed their run rates in May as planned maintenance and weak margins were both cited as contributing to a pullback from the world’s largest oil importer.

The CFTC’s commitment of traders report Friday confirmed that short covering by money managers was most certainly pushing up prices the week prior. WTI saw nearly half of its large speculative short positions bought back in just 1 week, while Brent’s multi-year high short bets were cut by 20%. In total, more than 62,000 crude contracts and 20,000 diesel contracts were repurchased after funds realized their bet that prices would continue sliding after they’d already hit multi-month lows was a mistake. The unwinding of the big speculators’ bets on lower oil prices will no doubt thrill the Saudi Arabian oil minister who famously threatened the “gamblers” back in 2020.

The National Hurricane Center is tracking 2 potential storm systems this week, one in the SW Gulf of Mexico is now given 70% odds of being named, but is expected to move inland over Mexico and not bring a major threat, but will bring thunderstorms to the U.S. Gulf Coast this week. The other system is only given 30% odds of development off of the coast of Georgia or South Carolina and doesn’t appear to be a threat to energy infrastructure.

The EIA published its annual U.S. refining capacity report Friday, which shows operating facilities as of January 1. It finally caught up with the Beaumont facility expansion completed more than 15 months ago, marking the largest growth in U.S. capacity in nearly a decade. Total operable capacity is still below the peak set in 2019 and is expected to drop further as the P66 Rodeo facility was converted this year, and the Lyondell Houston Refinery is once again expected to shut its doors at the end of the year. Since the government’s report is so far delayed, perhaps the most interesting part is the listing of all refineries that have closed since 1990.

Total reported 24 hours of flaring at its Port Arthur, TX refinery over the weekend. The only unit mentioned as a Flare Gas Recovery system so it appears the event won’t have a major impact on operations.

Baker Hughes reported 4 more oil rigs were taken offline in the U.S. last week, bringing the total count to a 2.5-year low at 488. Natural gas rigs were unchanged on the week at 98, the lowest total since October 2021.

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

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Market TalkFriday, Jun 14 2024

ULSD Futures Leading The Energy Markets Recovery Rally Today With 6 Week High

The recovery rally continues in energy markets with ULSD futures leading the way reaching a 6 week high this morning. If you were one of the money managers who decided to jump on the short-selling bandwagon at the start of June, you’re now underwater by around $5/barrel for crude oil contracts, and 25 cents/gallon for diesel contracts, which appears to be adding upward pressure to the market as that hot money heads for the exits, and is forced to buy out of their losing bets.

The recovery rally in refined products hasn’t done much to help out refiners that are still looking at their worst summer margins since the COVID lockdowns. The margin outlook is even worse for refiners in other parts of the world, particularly in Asia which is dealing with a glut of supply due to a rush of capacity additions in the past 2 years. Singapore announced this week that it was offering carbon tax rebates for its refiners to try and keep them afloat and able to compete with their new competition from China and Kuwait.

The enemy of my enemy: The American Farm Bureau and Corn Growers associations joined the American Petroleum Institute in a lawsuit Thursday challenging the EPA’s vehicle emissions standards. After the Ag and Oil lobbies have spent decades competing with each other for tax incentives and mandates on ethanol and biodiesel blends, they’ve found common ground in fighting the threat of EVs on their market share, with farmers providing the logical argument that rural communities [and tractors] aren’t conducive to EV use. The Renewable Fuel Association meanwhile is promoting its solution: Plug-in electric hybrid flex-fuel vehicles, or PHEFFVs for not-so-short.

The NHC is now giving 50% odds of development for the storm system brewing off of Mexico’s eastern coastline, but even if that system is named it looks like it will head west over land before threatening the U.S. The other system that threatened Florida this week is now making its way up the East Coast, but won’t be a major storm. Florida is still dealing with flash flooding, but so far there are no reports of terminal outages or port disruptions.

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