Petroleum Futures Are Working To Go 5 For 5 To Start The New Year As The Bull Run Continues

Market TalkFriday, Jan 7 2022
Pivotal Week For Price Action

Petroleum futures are working to go 5 for 5 to start the new year as the bull run continues, pushing ULSD back to the $2.50 mark and WTI above $80 in early trading. Cash prices haven’t seen as dramatic a move as futures in most cases as they had to overcome the New Year’s Eve futures selloff that didn’t hit wholesale prices until Monday night, but are still pointing towards healthy gains, despite evidence that we’re experiencing the worst fuel demand in parts of the country since the 2020 lockdowns as a parade of winter storms has accentuated the typical seasonal slowdown. 

While there’s no doubt the bulls took control of the energy markets this week, now that the short term technical targets have been reached, it looks like we could be due for a period of sideways trading, especially if we lose upward momentum in equity markets. Longer term, the bulls will need to find a way to make a run at the October highs in the next month or two – which is easier said than done this time of year – if they’re to avoid a longer-term bearish pattern on the charts.  

The December Jobs report showed another healthy month of increases with 199,000 jobs created, while both the headline and “real” (U-6) unemployment rates continued their declines.   In addition, the October and November estimates were revised higher by 149,000 jobs, adding to the overall feeling of strength in the labor market. Energy prices haven’t reacted much to the report, but equity prices are coming under pressure and interest rates are pushing higher again as we remain in a “good news is bad news” market since the strong job market just gives the FED another reason to shut down the money printing presses and start raising rates. 

Back in the USSR:  Russian troops have invaded intervened to quell deadly protests in Kazakhstan over the removal of fuel price subsidies. Those protests appear to also be interrupting crude exports from the country’s largest oilfield, which – combined with ongoing disruptions in Libyan - is likely to keep actual production from the OPEC & Friends cartel well below their target levels.

RIN prices have continued their steady march higher this week, and D6 (ethanol) values are now threatening the downward sloping trend-line that pushed prices from $2 in June to 80 cents in December. There doesn’t appear to be any “new” news driving the run-up in RINs, but the ongoing industry statements regarding the EPA’s proposed rules for 2020-2022 suggest that if those RVO’s become law, we’re destined to see another extended court battle. 

Ethanol prices meanwhile continue to see a dramatic drop, with most US spot markets now trading $1.50/gallon or more lower than they were just 6 weeks ago the winter demand doldrums that are being felt by gasoline producers all over the country are spilling over into the alcohol fuel arena and helping alleviate the supply bottlenecks that drove the record setting backwardation last year. 

Today’s interesting read:  Climate Change mistakes and the influence of fuel prices in politics.

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

Market Talk Update 01.07.22

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Pivotal Week For Price Action
Market TalkFriday, Apr 12 2024

Charts Continue To Favor A Push Towards The $3 Mark For Gasoline, While Diesel Prices May Need To Be Dragged Along For The Ride

Energy prices are rallying once again with the expected Iranian attack on Israel over the weekend appearing to be the catalyst for the move. RBOB gasoline futures are leading the way once again, trading up more than a nickel on the day to reach a fresh 7 month high at $2.8280. Charts continue to favor a push towards the $3 mark for gasoline, while diesel prices may need to be dragged along for the ride.

So far it appears that Motiva Pt. Arthur is the only refinery that experienced a noteworthy upset from the storms that swept across the southern half of the country this week. Those storms also delayed the first round of the Masters, which matters more to most traders this week than the refinery upset.

Chevron’s El Segundo refinery in the LA-area reported an unplanned flaring event Thursday, but the big moves once again came from the San Francisco spot market that saw diesel prices rally sharply to 25 cent premiums to futures. The Bay Area now commands the highest prices for spot gasoline and diesel as the conversion of 1 out of the 4 remaining refineries to renewable output is not-surprisingly creating disruptions in the supply chain.

RIN values dropped back below the 50-cent mark, after the recovery rally ran out of steam last week. The EPA is facing numerous legal challenges on the RFS and other policies, and now half of the US states are challenging the agency’s new rule restricting soot emissions. That lack of clarity on what the law actually is or may be is having widespread impacts on environmental credits around the world and makes enforcement of such policies a bit of a joke. Speaking of which, the EPA did just fine a South Carolina company $2.8 million and require that it buy and retire 9 million RINs for improper reporting from 2013-2019. The cost of those RINs now is about 1/3 of what it was this time last year, so slow playing the process definitely appears to have paid off in this case.

The IEA continues to do its best to downplay global demand for petroleum, once again reducing its economic outlook in its Monthly Report even though the EIA and OPEC continue to show growth, and the IEA’s own data shows “Robust” activity in the first quarter of the year. The IEA has come under fire from US lawmakers for changing its priorities from promoting energy security, to becoming a cheerleader for energy transition at the expense of reality.

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

Pivotal Week For Price Action
Market TalkThursday, Apr 11 2024

Diesel Prices Continue To Be The Weak Link In The Energy Chain

Energy prices are ticking modestly lower this morning, despite warnings from the US that an Iranian attack on Israeli interest is “imminent” and reports of weather induced refinery outages, as demand fears seem to be outweighing supply fears temporarily. Diesel prices continue to be the weak link in the energy chain with both the DOE and OPEC reports giving the diesel bears reason to believe lower prices are coming.

The March PPI report showed a lower inflation reading for producers than the Consumer Price Index report, leading to an immediate bounce in equity futures after the big wave of selling we saw yesterday. To put the CPI impact in perspective, a week ago Fed Fund futures were pricing in an 80% chance of an interest rate cut by the FED’s July 31 meeting, and today those odds have shrunk to 40% according to the CME’s FedWatch tool.

OPEC’s monthly oil market report held a steady outlook for economic growth and oil demand from last month’s report, noting the healthy momentum of economic activity in the US. The cartel’s outlook also highlighted significant product stock increases last month that weighed heavily on refining margins, particularly for diesel. Given the US focus on ULSD futures that are deliverable on the East Coast, which continues to have relatively tight supply for diesel, it’s easy to overlook how quickly Asian markets have gotten long on distillates unless of course you’re struggling through the slog of excess supply in numerous west coast markets these days. The OPEC report noted this in a few different ways, including a 33% decline in Chinese product exports as the region simply no longer needs its excess. The cartel’s oil output held steady during March with only small changes among the countries as they hold to their output cut agreements.

If you believe the DOE’s diesel demand estimates, there’s reason to be concerned about domestic consumption after a 2nd straight week of big declines. The current estimate below 3 million barrels/day is something we typically only see the week after Christmas when many businesses shut their doors. We know the DOE’s figures are missing about 5% of total demand due to Renewable Diesel not being included in the weekly stats, and it’s common to see a drop the week after a holiday, but to lose more than a million barrels/day of consumption in just 2 weeks will keep some refiners on edge.

Most PADDs continue to follow their seasonal trends on gasoline with 1 and 2 still in their normal draw down period, while PADD 3 is rebuilding inventories faster than normal following the transition to summer grade products. That rapid influx of inventory in PADD 3 despite robust export activity helps explain the spike in premiums to ship barrels north on Colonial over the past 2 weeks. Gasoline also saw a sizeable drop in its weekly demand estimate, but given the holiday hangover effect, and the fact that it’s in line with the past 2 years, there’s not as much to be concerned about with that figure. While most of the activity happens in PADDs 1-3, the biggest disconnect is coming in PADDs 4 and 5, with gasoline prices in some Colorado markets being sold 50 cents or more below futures, while prices in some California markets are approaching 90 cents above futures.

Severe weather sweeping across the southern US knocked several units offline at Motiva’s Pt Arthur plant (the country’s largest refinery) Wednesday, and it seems likely that Louisiana refineries will see some disruption from the storm that spawned tornadoes close to the Mississippi River refining hub. So far cash markets haven’t reacted much, but they’ll probably need more time to see what damage may have occurred.

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, Apr 10 2024

Week 14 - US DOE Inventory Recap