Stock Markets And Energy Prices Moving Higher This Morning

Market TalkFriday, Nov 4 2022
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Stock markets and energy prices are both moving higher this morning following more reports that China is relaxing its COVID restrictions which would – theoretically at least – get the world’s 2nd largest economy back in growth mode.  October’s Jobs report is due out in a few minutes, but with the FED already making it clear that a pivot isn’t coming soon this week, that report may have less influence than normal. 

Correlations between energy and equity and currency markets have been fairly weak recently, but particularly for RBOB gasoline prices, they’ve been getting noticeably stronger over the past several sessions, and that news at least in part is contributing to the 9-cent gains in gasoline in the early going.

Reverse Cannon Ball run?  Diesel prices in LA are $1.40/gallon below those in New York today as diesel calendar spreads surged again Thursday and NYH premiums spiked north of 90 cents/gallon, while LA spots continue to wither.  NYH remains the outlier, trading at least 60 cents above all other US cash markets today, which should continue drawing barrels from far and wide, with strained capacity on pipelines, rail, trucks and vessels, steep backwardation, weather delays, and stiff competition from Europe being the only 7 limiting factors in resupplying the region.

California reported that diesel production in the state surged to a 2-year high last week, which was foreshadowed by basis prices for ULSD plummeting to a 50-cent discount to December futures earlier this week. Gasoline output went the opposite direction, with a large decline on the week, which was also foreshadowed by a rally in CARBOB basis values to a 60+ cent premium to futures.

Valero’s 290 mb/day refinery in Corpus Christi had multiple operating units shut by a fire Thursday, which was contained onsite without any injuries. While it’s unclear exactly which units were closed, or how long they may be offline, the Gulf Coast spot market seemed to shrug off the news, suggesting that event may either have minimal impact on operations or traders are just waiting to see how quickly restart commences.

The 180 million barrel sale of oil from the US Strategic Petroleum Reserve concluded Thursday, with the final 15 million barrels – which were announced last month as if they were a new release in a sign of the straw grasping taking place to deal with high energy prices – auctioned off, with deliveries scheduled in December.  It’s hard to argue that those sales of roughly 1 million barrels daily into the global market didn’t help cool down oil prices, but the question remains whether or not depleting half of the reserves will come back to bite us. 

The storm formerly known as Hurricane Lisa has made it into the Gulf of Mexico, but forecasts suggest the storm will not be able to regain its strength and rotation thanks to heavy wind shear in the area, which means the Gulf Coast refinery network may have dodged another bullet.   Meanwhile, Hurricane Martin is moving through the North Atlantic and is expected to weaken as it moves over that cold water, but still could bring damaging winds and rain to the UK.  2 other systems are still being tracked off of the SE US but given low odds of development.

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Market Talk Update 11-04-22

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Market TalkFriday, May 24 2024

Selling Continues In Energy Markets After Thursday's Reversal Rally Ran Out Of Steam In The Afternoon

The selling continues in energy markets after Thursday’s reversal rally ran out of steam in the afternoon, following the lead of U.S. equity markets which had a big sell-off on the day. Prices haven’t yet fallen below the multi-month lows we saw early last week, but we’re just a couple of cents away from those levels, and the potential technical trapdoor that could lead to sharply lower values over the next couple of weeks.

We did see a brief spike in gasoline futures after the settlement Thursday following reports that Colonial had shut down Line 4 due to an IT issue, but those gains were short-lived as the pipeline was restarted without issue a few hours later. Those who remember the chaos of May 2021 after Colonial was hacked are breathing a sigh of relief, particularly on one of the busiest demand days of the year, while others are no doubt disappointed we won’t get to see the rash of fake photos of people filling up plastic bags with gasoline.

OPEC & Friends (AKA the DoC) announced they’re moving June’s policy meeting to a virtual-only affair, which the market is taking as a signal of the status quo being held on output cuts.

Chicago being Chicago: Tuesday’s 60-cent basis spike was officially wiped out by Thursday afternoon, suggesting the short-lived rally was just short covering in an illiquid market rather than a meaningful supply disruption.

RIN values continued their rally this week, touching a 4-month high at 59 cents/RIN for both D4 and D6 values Thursday. If you believe in technical analysis on something like RINs, you can see a “W” pattern formed on the charts, suggesting a run to the 80-cent range is coming if prices can get above 60. If you are more of a fundamentalist, then you’ll probably think this rally is probably more short-term short-covering by producers of RD who have changed their schedule buying back their RIN hedges for volume they’re no longer planning to produce.

NOAA issued its most aggressive Hurricane forecast ever Thursday, joining numerous other groups that think a La Nina pattern and record warm waters will create more and bigger storms this year. With the activity level seeming to be a foregone conclusion at this point, now it’s all about where those storms hit to know if this busy season will be a huge factor in energy supplies like we saw in 2005, 2008, 2012 and 2017. With the Houston area already being bombarded by floods and deadly wind this year, the refinery row across the U.S. Gulf Coast seems even more vulnerable than normal to the effects of a storm.

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Pivotal Week For Price Action
Market TalkThursday, May 23 2024

Gasoline Prices Have Finally Found A Bid, Trading Up 3 Cents On The Day

Gasoline prices have finally found a bid, trading up 3 cents on the day after coming within a penny and a quarter of the multi-month lows set last week overnight. ULSD prices are also up a couple of cents in the early going after wiping out the gains they made last week. Both contracts are once again threatening a technical breakdown that could push prices another 20-30 cents lower if the current bounce isn’t sustained.

The EIA’s estimate for gasoline demand surged to a 7-month high last week, capping off a 4th straight week of gains that puts total consumption near the top end of the seasonal range after a very sluggish start to the year. AAA estimates that travel this Memorial Day weekend will approach a 20 year high with nearly 44 million people hitting the roads.

The EIA also published a note this morning showing average US gasoline prices are up 1% from last year, accompanied by a chart showing that average prices are down 7 cents/gallon from this time last year. The spread between retail gasoline prices on the West Coast vs the rest of the country continues to grow and is shown to be over $1.20/gallon thanks to Oregon and Washington’s Californication of their energy policies in recent years.

The EIA still seems to be struggling to figure out its accounting methods for crude oil inventories, with the adjustment factor that’s been creating all sorts of confusion the past couple of years flipping from a negative 200,000 barrels/day last week, to a positive 1.4 million barrels/day this week. You could give the EIA compilation crew a break and say that this reflects just how large and complex the US crude oil supply network is, or you could ask how did they suddenly “find” 10-million barrels of oil that they didn’t see last week.

Refiners are cranking up run rates, exceeding the levels we’ve seen this time of year in either of the past 2 years. Those higher run rates are added to the glut of diesel products that’s hanging over the majority of the country, and pushing rack spreads to levels we haven’t seen since the COVID lockdown in several markets.

The export market for US crude and refined products remains very busy with nearly 10 million barrels shipped out of the country every day. Refinery throughput was 16.2 million barrels/day last week, and more than 6 million barrels/day was exported even though gasoline and diesel exports have stagnated this year. The anticipated tick higher in US diesel exports following the rash of Russian refinery attacks has not materialized, which is no doubt contributing to the negative sentiment for diesel prices over the past month. The busy and growing export market for crude and other products also creates an interesting dynamic as we prepare for a busy hurricane season to kick off in a week as any disruption to infrastructure along the Gulf Coast could limit product going out of the country almost as much as it disrupts products flowing inland.

Basis values for RBOB in Chicago dropped 30 cents Wednesday after Tuesday’s 60 cent spike. It’s still unclear what if any impacts the confirmed fire at Exxon’s Joliet refinery, or the rumored upsets at BP’s Whiting facility have had on actual supply in the region, but the quick pullback suggests this is a flash in the pan rather than the start of a prolonged supply shortage.

Exxon reported a leak at its Beaumont TX Chemical plant, but it appears that upset isn’t impacting the operations at its adjacent refinery.

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Pivotal Week For Price Action
Market TalkWednesday, May 22 2024

Week 20 - US DOE Inventory Recap