Parade Of Winter Storms Hits Demand Across The Country

Market TalkWednesday, Feb 10 2021
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Oil and diesel prices are moving higher for an eighth straight day after Tuesday morning’s attempted sell-off proved to be short-lived. RBOB prices are struggling to keep up so far after a large build in U.S. gasoline inventories gave traders reason to pause. Tuesday’s bounce keeps the bullish trend lines intact, and the path open to test the 2020 highs set before COVID lockdowns became a reality even as more fundamental signs suggest this rally may have outkicked its coverage.

The API was reported to show a 3.5 million barrel draw in oil inventories last week, while distillates declined by just under ½ million barrels.  A large build in gasoline stocks of 4.8 million barrels seems to be the reason that the March RBOB contract is the only one of the big 4 petroleum futures trading in the red this morning, while the others add modest gains. The DOE’s weekly status report is due out at its normal time this morning, with the gasoline demand number sure to be closely watched as a parade of winter storms has hit demand across most of the country in the past two weeks.

Speaking of winter weather, a major cold snap is bringing temperatures well below normal for this time of year to a wide area of the country. Already, there are reports that several utilities are putting customers on notice that this could mean curtailments in natural gas availability due to a spike in heating demand. In years past this would often mean a spike in ULSD prices as heating oil demand for homes, and dyed diesel demand for power plant supplemental fuel. While we’ve been in the midst of a very strong rally in ULSD prices the past three months, this latest cold snap doesn’t appear to be doing much so far to add more fuel to the rally, with basis and time spreads hardly reacting over the past several days. A note this morning from the EIA may help explain why as the U.S. Northeast is still sitting on inventory levels for diesel that are well above normal levels.

The latest in the long line of refining casualties in the past year: Exxon announced it is closing one of the three remaining refineries in Australia, despite efforts from the government to bridge the gap until demand picks back up.

The Chevron refinery in Richmond, CA had a spill near its wharf in the San Francisco bay, but it appears that leak was contained, and given its relatively small size of around 600 gallons should not be a major issue for the bay area, or the refineries operations unless additional damage is discovered during the investigation. Bay area fuel diffs have been under heavy pressure lately as local shutdown orders continue to hamper fuel demand.

RIN markets have been relatively quiet this week after several weeks of wild trading as the political football known as the RFS continued to be punted back and forth in Washington. This week the EPA is hearing testimony on a proposed plan by the previous administration to extend the deadlines for complying with the RFS for 2019 and 2020, although a final ruling on that matter isn’t expected until the spring.

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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.

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Refined Products Seeing Small Losses Of Around A Penny While Crude Oil Contracts Hover Just Above Break Even

Energy futures are taking a breather to start Tuesday’s trading, with refined products seeing small losses of around a penny while crude oil contracts hover just above break even.

No new news on either the Red Sea shipping or Russian Refining attacks this morning, so Cocoa prices seem to be taking over the commodity headlines while energy markets wait on their next big move.

RBOB gasoline futures set a new 6-month high Monday at $2.7711, which leaves the door open on the weekly charts for the spring rally to continue. A run at the $3 mark is certainly possible in the next few weeks before the typical seasonal price peak is set just before the start of driving season.

A container ship lost power and crashed into the Francis Scott Key bridge in Baltimore this morning, causing a devastating collapse. While cargo shipping into the area will no doubt be impacted by this event, fuel supplies are unlikely to see any notable change since the 9 fuel terminals in Baltimore are primarily supplied by Colonial pipeline. Barges from Philadelphia refineries do supplement Baltimore supplies at times, and those vessel flows will be impacted at least until rescue operations are completed and the bridge sections removed from the waterway. That said, since shipping up from the Gulf Coast via Colonial is generally cheaper than shipping an NY Harbor-priced barrel south, the amount of supply disrupted by this event will be minimal.

While we’re still waiting on the official forecasts for the Atlantic Hurricane season, early reports continue to suggest that we could be in for a very busy year due to warm water temperatures and a forming La Nina pattern.

Dallas meanwhile is preparing for a different sort of disruption, with city officials encouraging companies to let employees work from home during the solar eclipse on April 8th as metroplex traffic is expected to surge. While some isolated fuel outages are certainly possible if people start panic buying gasoline they don’t need, there’s no reason to expect any widespread impact from the demand spike.

Today’s interesting read: Why AI requires a staggering amount of electricity and may create supply competition for EVs that will end up benefitting fossil fuels.

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