March Madness Winds Down With A Whimper

Market TalkWednesday, Mar 31 2021
Traders Torn As Opposing Trend Lines Converge

March madness is winding down with a whimper after several volatile weeks of trading. Energy prices are not doing much this morning as traders either stayed up too late watching basketball the past two nights, or are just waiting to see what the OPEC & friends monitoring committee meeting tomorrow brings. A reduction in the cartel’s demand forecast has many in the market believing they’ll roll over their output cuts, but the Saudi’s have been good at not following the script the past several months.

It’s the last trading day for the April RBOB and ULSD contracts so watch the May contracts (RBK & HOK) for price direction today. Futures and spot markets will be completely closed for Good Friday so rack prices should carry through from Thursday night’s posting all the way until Monday, unlike some recent partial holidays that saw big moves in futures and suppliers changing rack prices. 

RIN prices continued to sell off heavily this week, assisted by another big mover lower in soybean oil prices, after they surged to eight year highs earlier in March. Here are a few interesting reads on that subject:

  1. Why Bean Oil prices will move higher

  2. And here’s why they should keep falling 

  3. Soybeans might be in your tires, in addition to your fuel tank (not to mention on your plate)

Another potential influencer of the recent RIN rollercoaster? Big swings in ethanol production. An EIA note this morning shows that it wasn’t just oil refiners that suffered from February’s polar plunge. The report shows a dramatic drop in ethanol production due to surging natural gas prices followed by a rapid increase in output as producers took advantage of surging prices for both ethanol and their RINs.

Speaking of ethanol production, a facility in California that uses cow waste to produce ethanol received approval from the ARB of a new fuel pathway with a carbon intensity (CI) score of negative 426, compared to traditional ethanol with a score of positive 66. What does that mean? The new pathway has a negative carbon footprint, and thus generates .06 LCFS credits per gallon, which at current prices around $187 per MT, the producers can generate nearly $12/gallon worth of credits under California’s LCFS program.  

There have been numerous stories in the past year about China’s growing refinery output, which has now outpaced the U.S. A Bloomberg note this morning shows how those new plants are hammering margins and squeezing out other Asian producers. On the other hand, it does not appear that China has a program paying $12/gallon for fuel made from manure. 

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

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Energy Markets Are Ticking Modestly Higher Heading Into The Easter Weekend With Crude Oil Prices Leading The Way Up About $1.25/Barrel Early Thursday Morning

Energy markets are ticking modestly higher heading into the Easter Weekend with crude oil prices leading the way up about $1.25/barrel early Thursday morning, while gasoline prices are up around 2.5 cents and ULSD futures are about a penny.

Today is the last trading day for April HO and RBOB futures, an unusually early expiration due to the month ending on a holiday weekend. None of the pricing agencies will be active tomorrow since the NYMEX and ICE contracts are completely shut, so most rack prices published tonight will carry through Monday.

Gasoline inventories broke from tradition and snapped a 7 week decline as Gulf Coast supplies increased, more than offsetting the declines in PADDs 1, 2 and 5. With gulf coast refiners returning from maintenance and cranking out summer grade gasoline, the race is now officially on to move their excess through the rest of the country before the terminal and retail deadlines in the next two months. While PADD 3 run rates recover, PADD 2 is expected to see rates decline in the coming weeks with 2 Chicago-area refineries scheduled for planned maintenance, just a couple of weeks after BP returned from 7 weeks of unplanned repairs.

Although terminal supplies appear to be ample around the Baltimore area, we have seen linespace values for shipping gasoline on Colonial tick higher in the wake of the tragic bridge collapse as some traders seem to be making a small bet that the lack of supplemental barge resupply may keep inventories tight until the barge traffic can move once again. The only notable threat to refined product supplies is from ethanol barge traffic which will need to be replaced by truck and rail options, but so far that doesn’t seem to be impacting availability at the rack. Colonial did announce that they would delay the closure of its underutilized Baltimore north line segment that was scheduled for April 1 to May 1 out of an “abundance of caution”.

Ethanol inventories reached a 1-year high last week as output continues to hold above the seasonal range as ethanol distillers seem to be betting that expanded use of E15 blends will be enough to offset sluggish gasoline demand. A Bloomberg article this morning also highlights why soybeans are beginning to displace corn in the subsidized food to fuel race.

Flint Hills reported a Tuesday fire at its Corpus Christi West facility Wednesday, although it’s unclear if that event will have a material impact on output after an FCC unit was “stabilized” during the fire. While that facility isn’t connected to Colonial, and thus doesn’t tend to have an impact on USGC spot pricing, it is a key supplier to the San Antonio, Austin and DFW markets, so any downtime may be felt at those racks.

Meanwhile, P66 reported ongoing flaring at its Borger TX refinery due to an unknown cause. That facility narrowly avoided the worst wildfires in state history a few weeks ago but is one of the frequent fliers on the TCEQ program with upsets fairly common in recent years.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.

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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.

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