Recovery Rally Continues For 2nd Day

Market TalkTuesday, Dec 4 2018
DOE Week 48 - 2018 Report

The recovery rally continues for a 2nd day as production cuts remain the big story ahead of an OPEC & Friends meeting later in the week. The high trades for WTI & Brent overnight marked a 10% bounce off of their lows for the year set last Thursday, while refined products have earned back around 8% in the past 3 days.

For those wondering how high prices could bounce now that the recovery seems to have found its legs: The $60 mark for WTI looks to be a good intermediate term target as it represents both a 38% retracement of the fall price collapse, and marks the bullish trend-line from the 2016 low of $26, which was broken for the first time 2 weeks ago. IF we see WTI make a run to $60, that should mean roughly another 15-20 cents of upside for refined products.

Thursday is scheduled to be an OPEC-only meeting & press conference, while Friday include the non-OPEC countries that have participated in the recent production cuts (Russia) and will conclude with a joint press conference Friday afternoon (Vienna time) meaning we should know sometime in the morning what their new plan will be.

Western Canadian select crude oil gained almost $9/barrel Monday, in the wake of Alberta’s announcement of forced, albeit temporary, production cuts. Hard to say which is more notable, WCS prices doubling in just the past 2 weeks, or the fact that prices are still only $29/barrel.

The API report is due out at its normal time this afternoon, but the weekly EIA report will be delayed one day this week as federal offices will observe a national day of mourning Wednesday in honor of President George H.W. Bush.

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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.

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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.

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