Refined Products Are Sliding To Start The Week

Market TalkMonday, Aug 29 2022
Pivotal Week For Price Action

Refined products are sliding to start the week, while crude oil prices are up more than $1/barrel in the early going.

Weaker equity markets following the FED’s Friday reminder that it wasn’t done fighting inflation is getting some credit for the sell-off. In addition, refined products appear to still be taking cues from European energy prices which are seeing a healthy sell-off after Germany reported it was ahead of schedule in filling up its natural gas storage, which could help avoid an electricity crisis this winter. 

The EPA has waived summer gasoline RVP requirements a few weeks ahead of normal for 4 Midwestern states to help deal with the fallout from a fire at the BP refinery outside of Chicago which is the largest plant in the region, and 6th largest in the country. In addition, Michigan’s governor has declared a state of emergency, Chicago basis values jumped on Friday as buyers scrambled to find other options, with the refineries restart timeframe still up in the air. 

Short covering was the theme last week for money managers, who slashed their bets on falling petroleum prices in dramatic fashion, and drove a large increase in net length on most contracts. ULSD was the only one of the big 5 petroleum contracts that saw a decline in net length held by large speculators, even though 5% of the outstanding short positions were covered during the previous week. Open interest in crude and refined product contracts continues to hold at 5-7 year lows, which appears to be a key contributor to the low volume/high volatility daily price swings we’ve become accustomed to.

4 more oil rigs were put to work last week, according to Baker Hughes’ weekly rig count, while natural gas rigs saw a decline of 1. The Texas side of the Permian basin accounted for most of the increase in oil drilling last week, while the Eagle Ford basin saw a decrease of 2 rigs on the week.

The tropics woke up after a long summer nap. The National Hurricane center is tracking 4 different potential storm systems this week. Three of those systems are given low odds of development, but one is given 80% odds of getting a name over the next 5 days. If that storm isn’t named by Wednesday, this would be the first time in 25 years that we’ve gone the entire month of August without a named storm. Despite the slow start, forecasters are still calling for an above-average storm season, which means September is going to get very busy if they’re right. 

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Market Talk 08.29.22

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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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Market TalkTuesday, Mar 26 2024

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.