RBOB Gasoline Futures Touched Their Lowest Level Of The Year Overnight While ULSD And Crude Oil Prices Hit 3-Month Lows

Market TalkWednesday, Nov 8 2023
Pivotal Week For Price Action

RBOB gasoline futures touched their lowest level of the year overnight while ULSD and crude oil prices hit 3-month lows. A combination of weak technical factors and demand concerns seem to be driving the move lower, even as stock markets continue their recent run higher on hopes that the interest rate hikes are finished. A stronger dollar is also getting credit for the slide in energy prices by some media outlets, even though the correlation between the asset classes has actually been positive over the past 30 days.

The last time we saw ULSD test its 200-day moving average, just over a month ago, prices bottomed out at $2.83 and rallied 42 cents over the next 10 days. This time, that support layer offered little more than a speed bump on the move lower, and a technical trapdoor seems to have opened once the descending triangle pattern was completed. Longer term, the charts suggest this breakdown could send prices back below $2.50 where we saw them bottom out last spring, although near term the contracts are begging for a corrective bounce after prices dropped 27 cents from Friday’s high.

RBOB seems to be facing a similar test around the $2.15 range today, but so far are managing to hold just above that level, which looks like the pivot point on the charts that will determine whether or not gasoline futures make a run at sub $2 levels by year end. Note that Gulf Coast spot values for gasoline are already trading below the $2 mark, and the big spread between Gulf and East coast values has values for Colonial pipeline space holding north of $.10/gallon.

Buying it, not buying it:  While the big drop in diesel futures is capturing the headlines, 2 of the country’s more volatile spot markets are seeing basis values rally sharply to keep cash prices moving higher this week. Chicago ULSD Basis had gone from worst to first in November with a 50-cent rally from a 30-cent discount to a 20-cent premium following a pair of rumored-but-unconfirmed refinery upsets in Illinois. Not to be outdone however, LA CARB diesel basis jumped to a 30-cent premium this week, following October’s 60 cent collapse. LA CARBOB basis values also rallied, and local allocations have been restricted suggesting a local refinery had a disruption although nothing yet has been reported to the AQMD. Meanwhile, Chevron’s El Segundo refinery in LA was reported to start up its new either-or Hydro treater unit that will allow the facility to produce either traditional or renewable diesel, expanding that plant’s co-processing capacity. 

The API reported a huge build in crude oil stocks last week above 11 million barrels, while distillates increase by 1 million barrels, and gasoline stocks dropped by 400,000. The EIA’s weekly status report will not be released this week due to a system upgrade. You might keep an eye on futures at the 9:30am Eastern time anyway just to see if any trading programs weren’t updated and still try to react to the non-existent report.

Go ahead and take a few weeks off: Accuweather forecasters declared an end to the Atlantic Hurricane season 3 weeks early, saying that the US won’t see any impacts from a storm this year. The season was quite active, and several huge storms formed, but most of the country – and the energy supply network – avoided any major issues thanks to favorable steering currents that kept most of the storms off-shore and out of the Gulf of Mexico.  

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Market Talk Update 11.08.2023

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Pivotal Week For Price Action
Market TalkTuesday, Nov 28 2023

Values For Space On Colonial’s Main Gasoline Line Continue To Drop This Week

The petroleum complex continues to search for a price floor with relatively quiet price action this week suggesting some traders are going to wait and see what OPEC and Friends can decide on at their meeting Thursday. 

Values for space on Colonial’s main gasoline line continue to drop this week, with trades below 10 cents/gallon after reaching a high north of 18-cents earlier in the month. Softer gasoline prices in New York seems to be driving the slide as the 2 regional refiners who had been down for extended maintenance both return to service. Diesel linespace values continue to hold north of 17-cents/gallon as East Coast stocks are holding at the low end of their seasonal range while Gulf Coast inventories are holding at average levels.

Reversal coming?  Yesterday we saw basis values for San Francisco spot diesel plummet to the lowest levels of the year, but then overnight the Chevron refinery in Richmond was forced to shut several units due to a power outage which could cause those differentials to quickly find a bid if the supplier is forced to become a buyer to replace that output.

Money managers continued to reduce the net length held in crude oil contracts, with both Brent and WTI seeing long liquidation and new short positions added last week. Perhaps most notable from the weekly COT report data is that funds are continuing their counter-seasonal bets on higher gasoline prices. The net length held by large speculators for RBOB is now at its highest level since Labor Day, at a time of year when prices tend to drop due to seasonal demand weakness. 

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Pivotal Week For Price Action
Market TalkMonday, Nov 27 2023

After Another Black Friday Selloff Pushed Energy Futures Sharply Lower In Last Week’s Holiday-Shortened Trading

After another Black Friday selloff pushed energy futures sharply lower in last week’s Holiday-shortened trading, we’re seeing a modest bounce this morning. Since spot markets weren’t assessed Thursday or Friday, the net change for prices since Wednesday’s settlement is still down more than 6-cents for gasoline and almost 5-cents for diesel at the moment.

OPEC members are rumored to be nearing a compromise agreement that would allow African producers a higher output quota. Disagreement over that plan was blamed on the cartel delaying its meeting by 4-days last week which contributed to the heavy selling. The bigger problem may come from Russia, who announced plans last week to increase its oil output once its voluntary cut agreement ends now that price cap mechanisms are proving to be ineffective

While an uneasy truce in Gaza held over the weekend, tensions on the Red Sea continued to escalate with the US Navy intervening to stop another hijacking and being rewarded for its efforts by having missiles fired at one of its ships.  

RIN values came under heavy selling pressure Wednesday afternoon following a court overturning the EPA’s ruling to deny small refinery hardship waivers to the RFS. Those exemptions were a big reason we saw RINs drop sharply under the previous administration, and RINs were already on due to the rapid influx of RD supply this year.

More bad news for the food to fuel lobby: the White House is reportedly stalling plans to allow E15 blending year-round after conflicting studies about ethanol’s ability to actually lower carbon emissions, and fuel prices. Spot prices for ethanol in Chicago reached a 2.5 year low just ahead of the holiday.  

Baker Hughes reported the US oil rig count held steady at 500 active rigs last week, while natural gas rigs increased by 3. 

The first of perhaps several refining casualties caused by the rapid increase in new capacity over the past two years was reported last week. Scotland’s only refinery, which has a capacity of 150mb/day is preparing to shutter in 2025.

The CFTC’s commitment of traders report was delayed due to the holiday and will be released this afternoon.

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Pivotal Week For Price Action
Market TalkWednesday, Nov 22 2023

Week 47 - US DOE Inventory Recap