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, 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