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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Pivotal Week For Price Action
Market TalkThursday, Dec 1 2022

December Trading Is Kicking Off With Modest Gains For Energy Contracts

December trading is kicking off with modest gains for energy contracts after a strong finish to November helped the complex avoid a technical breakdown.  

Equity markets saw another big rally Wednesday after the FED chair suggested that smaller rate hikes were coming. The correlation between energy and equity markets remains weak, so it doesn’t seem like that’s having much influence on daily pricing, but it certainly doesn’t hurt the case for a recovery rally.  New reports that China may ease some lockdowns in the wake of last weekend’s protests is also getting some credit for the strength in prices after they reached 11 month lows on Monday.

The DOE’s weekly report had something for everyone with crude oil stocks showing some bullish figures while refined product supplies got some much-needed relief.

US Crude oil inventories saw a huge drop of more than 12 million barrels last week thanks to a surge in exports to the 3rd highest level on record, a drop in imports, and the SPR sales that have been supplementing commercial supplies for the past 6 months wind down. The market reaction was fairly muted to the big headline drop, which is probably due to the inconsistent nature of the import/export flows, which are likely to reverse course next week. The lack of SPR injections will be a key figure to watch through the winter, particularly as the Russian embargo starts next week.

Diesel inventories increases across all 5 PADDs last week, as demand dipped again and imports ticked higher. Diesel exports remain above average, and are expected to continue that pace in the near term as European and Latin American buyers continue to be short. Read this note for why in the long term more of those supplies will probably come from China or Kuwait

US refiners continue to run all-out, with total throughput last week reaching its highest level since the start of the pandemic, even though we’ve lost more than 600,000 barrels/day of capacity since then. Those high run rates at a time of soft demand help explain why we’re seeing big negative basis values at the refining hubs around the country and if the pipeline and vessel outlets can’t keep pace to move that product elsewhere we may see those refiners forced to cut back due to lack of storage options.

The EPA was required by court order to submit its plans for the renewable fuel standard by November 16, and then came to an agreement to release them on November 30, and then apparently decided to meet that deadline, but not release the plan to the public. If you think this is ridiculous, you’re not alone, but keep in mind this is the same agency that regularly missed the statutory deadline by more than a year previously, so it’s also not too surprising. This is also the law that required 16 billion gallons/year of cellulosic biofuels be blended by 2022 when it was put into place 15 years ago, only to run into a wall of physical reality where the country is still unable to produce even 1 billion gallons/year of that fuel. 

There are still expectations that the public may get to see the proposed rulings later this week, and reports that renewable electricity generation will be added to the mix for the first time ever starting next year. RIN prices were pulling back from the 18 month highs they reached leading up to the non-announcement as it seems the addition of “eRINs” will add new RIN supply, and potentially offset the increased biofuel mandates.

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, Nov 30 2022

Energy Markets Are Seeing A Strong Rally For A 2nd Day

Energy markets are seeing a strong rally for a 2nd day as uncertainty about the upcoming OPEC meeting and about the looming Russian oil embargo seem to have markets focusing on supply fears again, after weeks of demand-fears driving prices lower. Diesel prices are up more than 22 cents from yesterday’s low trade, while gasoline prices are up 12. The bounce puts the complex back in neutral technical territory after surviving a trip to the edge of a breakdown that could have sent prices sharply lower. 

Concerns about a pending recession continue to plague equity markets as the US Treasury yield curve is inverted to a degree we’ve only seen a couple of times in the past 25 years. As the chart below shows, these inversions have been a good indicator of a pending economic slowdown. Energy markets seem to already have gotten that selling out of their system in the short term, but this could once again become a factor if this latest rally runs out of steam. 

The European Union still can’t unite on a price cap agreement for Russian oil, less than a week before an embargo on Russian oil is set to begin. Both WTI and Brent crude have slipped into a Contango price curve near term as current supplies are proving ample as traders have had months to prepare for this change, and demand has softened globally. 

Meanwhile, Italian officials continue to race to find a way to keep their Sicilian refinery in operation after the embargo begins, asking the US to provide banks assurance that they won’t face fines for breaching sanctions given the Russian-owned status of that plant. Since the US is a consistent buyer of products from that facility, and the East Coast continues to struggle to find enough supply, perhaps it’s an offer they can’t refuse. 

OPEC and friends have decided to hold their upcoming meeting virtually, which some are taking as a sign that they will roll over their output cut agreement from October. 

The tornado outbreak in the southern US looks like it stayed far enough away from the Gulf Coast to spare the refineries in the area. The Alon refinery in Big Spring TX reported an operational issue that lasted more than 16 hours Monday, that ENT is reporting could end up causing extended downtime at that facility. While that plant is far from the Gulf Coast trading hub, downtime could add to the supply challenges to West Texas and surrounding markets.

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

Pivotal Week For Price Action
Market TalkWednesday, Nov 30 2022

Week 48 - US DOE Inventory Recap