Risk Taking Has Fallen Out Of Favor As Markets Around The World Fall Out Of Bed With Heavy Losses To Start Friday’s Trading

Market TalkFriday, Sep 23 2022
Pivotal Week For Price Action

Risk taking has fallen out of favor as markets around the world fall out of bed with heavy losses to start Friday’s trading. Refined product futures are seeing heavy selling this morning, down 13 cents or more in the early going, despite signs from cash markets of supply tightness in numerous spots around the country.

Diesel prices would still finish with 10 cent gains for the week if they settled at current levels, but have dropped 20 cents from Wednesday’s high just a few ticks below the $3.50 mark.  That pullback keeps a downward trend line in place that started from the August 25th high of $4.11, and would set up another test of the $3.14 range in the next week or two if prices don’t rally soon. Ordinarily, those types of swings would make for a busy year, and now we’re used to it happening in a month.

Fiona looks like it will set records as one of the strongest storms to ever hit the Canadian coast this weekend, but appears like it will stay just far enough east to avoid a hit on the Irving refinery in St. John New Brunswick.  Shipping in the region will certainly be impacted as the storm blows through, but the current path appears favorable to avoid significant long term damage to ports. 

The storm likely to be named Hermine was upgraded to a tropical depression overnight, and is now expected to hit south west Florida as a category 2 or 3 Hurricane Tuesday or Wednesday.  The Key West and Ft. Myers are looking particularly vulnerable from the path of this system, with Cuba looking like the only thing that might slow the storm’s rapid intensification as it crosses the extremely warm waters in the Caribbean this weekend.  The good news for energy supplies about this forecast path is that it keeps it well east of the oil production and refining zones in the Gulf of Mexico.  That won’t prevent a surge of panic buying in Florida, but it will help resupplies once the storm has passed.  Some models have this storm making additional landfalls on the east coast next week.

It’s been a rough week for refineries around the world. A fire at Husky’s refinery in Ohio killed 2 workers and has sent Chicago basis values soaring. Exxon is shutting down a refinery in France after a walkout of workers, and now Argentinian oil unions are striking after refinery explosion killed 3 workers. While none of those facilities individually will create major disruptions, they are all clear reminders of both the dangers of the industry, and the vulnerability of supply with refining capacity stretched to its limits.

Speaking of which, the West Coast continues to struggle with extremely tight supplies of gasoline that have sent basis values surging $1.50-$2 above futures and most other regional markets. A rash of refinery issues, and no options from neighboring markets for summer-grade gasoline are both contributing to the extreme price action. The big question for the next two weeks is whether or not imports are available to help alleviate this tightness, or if resupplies will have to wait until the market converts to winter-grade gasoline.

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

Market Talk Update 09.23.2022

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Pivotal Week For Price Action
Market TalkFriday, May 17 2024

The Recovery Rally In Energy Markets Continues For A 3rd Day

The recovery rally in energy markets continues for a 3rd day with refined product futures both up more than a dime off of the multi-month lows we saw Wednesday morning. The DJIA broke 40,000 for the first time ever Thursday, and while it pulled back yesterday, US equity futures are suggesting the market will open north of that mark this morning, adding to the sends of optimism in the market.

Despite the bounce in the back half of the week, the weekly charts for both RBOB and ULSD are still painting a bearish outlook with a lower high and lower low set this week unless the early rally this morning can pick up steam in the afternoon. It does seem like the cycle of liquidation from hedge funds has ended however, so it would appear to be less likely that we’ll see another test of technical support near term after this bounce.

Ukraine hit another Russian refinery with a drone strike overnight, sparking a fire at Rosneft’s 240mb/day Tuapse facility on the black sea. That plant was one of the first to be struck by Ukrainian drones back in January and had just completed repairs from that strike in April. The attack was just one part of the largest drone attack to date on Russian energy infrastructure overnight, with more than 100 drones targeting power plants, fuel terminals and two different ports on the Black Sea. I guess that means Ukraine continues to politely ignore the White House request to stop blowing up energy infrastructure in Russia.

Elsewhere in the world where lots of things are being blown up: Several reports of a drone attack in Israel’s largest refining complex (just under 200kbd) made the rounds Thursday, although it remains unclear how much of that is propaganda by the attackers and if any impact was made on production.

The LA market had 2 different refinery upsets Thursday. Marathon reported an upset at the Carson section of its Los Angeles refinery in the morning (the Carson facility was combined with the Wilmington refinery in 2019 and now reports as a single unit to the state, but separately to the AQMD) and Chevron noted a “planned” flaring event Thursday afternoon. Diesel basis values in the region jumped 6 cents during the day. Chicago diesel basis also staged a recovery rally after differentials dropped past a 30 cent discount to futures earlier in the week, pushing wholesale values briefly below $2.10/gallon.

So far there haven’t been any reports of refinery disruptions from the severe weather than swept across the Houston area Thursday. Valero did report a weather-related upset at its Mckee refinery in the TX panhandle, although it appears they avoided having to take any units offline due to that event.

The Panama Canal Authority announced it was increasing its daily ship transit level to 31 from 24 as water levels in the region have recovered following more than a year of restrictions. That’s still lower than the 39 ships/day rate at the peak in 2021, but far better than the low of 18 ships per day that choked transit last year.

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

Pivotal Week For Price Action
Market TalkThursday, May 16 2024

Energy Prices Found A Temporary Floor After Hitting New Multi-Month Lows Wednesday

Energy prices found a temporary floor after hitting new multi-month lows Wednesday morning as a rally to record highs in US equity markets and a modestly bullish DOE report both seemed to encourage buyers to step back into the ring.

RBOB and ULSD futures both bounced more than 6 cents off of their morning lows, following a CPI report that eased inflation fears and boosted hopes for the stock market’s obsession of the FED cutting interest rates. Even though the correlation between energy prices and equities and currencies has been weak lately, the spillover effect on the bidding was clear from the timing of the moves Wednesday.

The DOE’s weekly report seemed to add to the optimism seen in equity markets as healthy increases in the government’s demand estimates kept product inventories from building despite increased refinery runs.

PADD 3 diesel stocks dropped after large increases in each of the past 3 weeks pushed inventories from the low end of their seasonal range to average levels. PADD 2 inventories remain well above average which helps explain the slump in mid-continent basis values over the past week. Diesel demand showed a nice recovery on the week and would actually be above the 5 year average if the 5% or so of US consumption that’s transitioned to RD was included in these figures.

Gasoline inventories are following typical seasonal patterns except on the West Coast where a surge in imports helped inventories recover for a 3rd straight week following April’s big basis rally.

Refiners for the most part are also following the seasonal script, ramping up output as we approach the peak driving demand season which unofficially kicks off in 10 days. PADD 2 refiners didn’t seem to be learning any lessons from last year’s basis collapse and rapidly increased run rates last week, which is another contributor to the weakness in midwestern cash markets. One difference this year for PADD 2 refiners is the new Transmountain pipeline system has eroded some of their buying advantage for Canadian crude grades, although those spreads so far haven’t shrunk as much as some had feared.

Meanwhile, wildfires are threatening Canada’s largest oil sands hub Ft. McMurray Alberta, and more than 6,000 people have been forced to evacuate the area. So far no production disruptions have been reported, but you may recall that fires in this region shut in more than 1 million barrels/day of production in 2016, which helped oil prices recover from their slump below $30/barrel.

California’s Air Resources Board announced it was indefinitely delaying its latest California Carbon Allowance (CCA) auction – in the middle of the auction - due to technical difficulties, with no word yet from the agency when bidders’ security payments will be returned, which is pretty much a nice microcosm for the entire Cap & Trade program those credits enable.

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, May 15 2024

Week 19 - US DOE Inventory Recap