October ULSD Prices Are Trading Within A Few Points Of A Fresh 8-Month High North Of $3.40/Gallon This Morning

Market TalkWednesday, Sep 13 2023
Pivotal Week For Price Action

After a one-day break, ULSD futures have resumed their march higher and taken back the role as the leader of the energy market with multiple serious weather events contributing to the rally. October ULSD prices are trading within a few points of a fresh 8-month high north of $3.40/gallon this morning, while WTI reached a new high for the year just shy of the $90 mark overnight. 

The disastrous flooding in Libya that has killed more than 6,000 people is being blamed for some of the rally in oil prices as more than 1 million barrels/day of exports are currently shut in. 

The API reported inventory builds across the board last week with gasoline stocks up 4.2 million barrels, diesel up 2.6 million and crude oil stocks up 1.2 million. The DOE/EIA’s weekly report is due out at its normal 9:30 central release time this morning. 

The EIA’s monthly short term energy outlook (STEO) reduced gasoline demand estimates 2% for next year despite an increase in GDP projections from previous reports due to changes in the US census that show more retired-age people who tend to drive less. The report also reduced total liquid fuels consumption in the country as the agency reclassified natural gasoline and unfinished oils as crude oil supply, since those are growing byproducts of oil production that had been artificially inflating the demand estimates for several years.

The report also highlighted the tight diesel supplies along the East Coast as we head into fall and projects a larger than normal decline in inventories next month due to the scheduled refinery turnarounds starting at the Irving and Monroe facilities.

Speaking of Irving, an Energy News Today report Tuesday suggested that the facility was preparing to delay the start of its major maintenance work due to hurricane Lee, which looks like it could make a direct hit on the facility Sunday as a tropical storm. Roughly half of that 320mb/day facility was scheduled to be taken offline for around 6-7 weeks of work starting Sunday, but will now wait until the storm passes to try and avoid having to go through multiple shutdown/restart cycles and to keep vulnerable equipment out of harm’s way. The good news is that the storm that was pushing 165mph sustained winds late last week is only forecast to have winds in the 60-70mph range when it makes landfall, which some New Englanders will classify as just a nice breeze. The bad news is the storm is pushing a huge amount of water into areas vulnerable to storm surge that are already being inundated with regular thunderstorms, so there is still plenty of risk of flooding for communities in its path.   

The family-owned Irving oil company was recently reported to be put up for sale, coinciding with the company losing a 40-year old property tax exemption from the Canadian government, so any impacts from this storm could also influence the decision on what to do with the facility long term. Given the strong years refiners have enjoyed, and the important role this facility plays in supplying the East Coast, it seems hard to imagine this storm could shut down the plant permanently, but then again that’s exactly what Hurricane Ida did to the P66 Alliance facility less than 2 years ago.  

The August CPI report came in +.6% near forecasted levels with headline inflation up 3.7% on the year, while ex Food and Energy prices were up 4.3%. Stocks and energy futures changed little after the report was released, suggesting these figures weren’t surprising anyone. Most notable (if you’re reading this note anyway) are that gasoline and fuel oil prices were up more than 10% in August, meaning that fuel prices are once again the biggest factor in pushing inflation higher after being the largest deflationary data point for most of the past year.

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Market Talk Update 09.13.2023

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Pivotal Week For Price Action
Market TalkFriday, Sep 22 2023

Energy Markets Are Ticking Modestly Higher This Morning But Remain Well Off The Highs Set Early Thursday

Energy markets are ticking modestly higher this morning but remain well off the highs set early Thursday following the reports that Russia was temporarily banning most refined product exports.  

The law of government intervention and unintended consequences: Russian officials claim the export ban is an effort to promote market stability, and right on cue, its gasoline prices plummeted a not-so-stable 10% following the news. 

There’s a saying that bull markets don’t end due to bad news, they end when the market stops rallying on good news. It’s possible that if ULSD futures continue lower after failing to sustain yesterday’s rally, or this morning’s, we could be seeing the end of the most recent bull run. That said, it’s still much too soon to call the top here, particularly with a steepening forward curve leaving prices susceptible to a squeeze, and the winter-demand months still ahead of us. Short term we need to see ULSD hold above $3.30 next week to avoid breaking its weekly trend line.

The sell-off in RIN values picked up steam Thursday, with 2023 D4 and D6 values dropping to the $1.02 range before finally finding a bid later in the session and ending the day around $1.07.   

Tropical Storm Ophelia is expected to be named today, before making landfall on the North Carolina coast tomorrow. This isn’t a major storm, and there aren’t any refineries in its path, so it’s unlikely to do much to disrupt supply, but it will dump heavy rain several of the major East Coast markets so it will likely hamper demand through the weekend. The other storm system being tracked by the NHC is now given 90% odds of being named next week, but its predicted path has shifted north as it moves across the Atlantic, which suggests it is more likely to stay out to sea like Nigel did than threaten either the Gulf or East Coasts.

Exxon reported an upset at its Baytown refinery that’s been ongoing for the past 24 hours.  It’s still unclear which units are impacted by this event, and whether or not it will have meaningful impacts on output. Total’s Pt Arthur facility also reported an upset yesterday, but that event lasted less than 90 minutes. Like most upsets in the region recently, traders seem to be shrugging off the news with gulf coast basis values not moving much. 

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

Pivotal Week For Price Action
Market TalkThursday, Sep 21 2023

The Yo-Yo Action In Diesel Continues With Each Day Alternating Between Big Gains And Big Losses So Far This Week

The yo-yo action in diesel continues with each day alternating between big gains and big losses so far this week. Today’s 11-cent rally is being blamed on reports that Russia is cutting exports of refined products effective immediately. It’s been a while since Russian sabre rattling has driven a noticeable price move in energy futures, after being a common occurrence at the start of the war. Just like tweets from our prior President however, these types of announcements seem to have a diminishing shelf-life, particularly given how the industry has adapted to the change in Russian export flows, so don’t be surprised if the early rally loses steam later today. 

The announcement also helped gasoline prices rally 5-cents off of their overnight lows, and cling to modest gains just above a penny in the early going. Before the announcement, RBOB futures were poised for a 5th straight day of losses.

IF the export ban lasts, that would be good news for US refiners that have seen their buyers in south American countries – most notably Brazil – reduce their purchases in favor of discounted barrels from Russia this year

US refinery runs dropped below year-ago levels for the first time in 6 weeks, with PADDS 1, 2 and 3 all seeing large declines at the start of a busy fall maintenance schedule.  Oil inventories continued to decline, despite the drop-in run rates and a big increase in the adjustment factor as oil exports surged back north of 5 million barrels/day. Keep in mind that as recently as 2011 the US only produced 5 million barrels of oil every day, and exports were mostly banned until 2016, so to be sending this many barrels overseas is truly a game changer for the global market.

Chicken or the egg?  Cushing OK oil stocks dropped below year-ago levels for the first time since January last week, which may be caused by the return of backwardation incenting shippers to lower inventory levels, the shift to new WTI Midland and Houston contracts as the export market expands.  Of course, the low inventory levels are also blamed for causing the backwardation in crude oil prices, and the shift to an export market may keep inventories at the NYMEX hub lower for longer as fewer shippers want to go inland with their barrels.

Refined product inventories remain near the bottom end of their seasonal ranges, with a healthy recovery in demand after last week’s holiday hangover helping keep stocks in check.  The biggest mover was a large jump in PADD 5 distillates, which was foreshadowed by the 30 cent drop in basis values the day prior.   The big story for gasoline on the week was a surge in exports to the highest level of the year, which is helping keep inventories relatively tight despite the driving season having ended 2 weeks ago.

As expected, the FED held rates yesterday, but the open market committee also included a note that they expected to raise rates one more time this year, which sparked a selloff in equity markets that trickled over into energy prices Wednesday afternoon. The correlation between energy and equities has been non-existent of late, and already this morning we’re seeing products up despite equities pointing lower, so it doesn’t look like the FOMC announcement will have a lasting impact on fuel prices this time around.

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

Pivotal Week For Price Action
Market TalkWednesday, Sep 20 2023

Week 38- US DOE Inventory Recap