Stocks Suffer Worst Day Since 1987

Market TalkFriday, Mar 13 2020
Roller-Coaster Continues With Oil Price War

The roller-coaster is pointing higher this morning as stocks point to a five percent rally after suffering their worst day since 1987. RBOB gasoline continues to be the most volatile of the energy contracts this week, with 25 cent losses Thursday transitioning to 12 cent gains Friday morning, while oil and ULSD have seen swings less than half of that size.

When Thursday’s gasoline collapse settled out, prompt values for most Midwest and East Coast cash markets were below 80 cents/gallon, with Chicago CBOB taking the title as cheapest in the country, ending the day just below 75 cents/gallon. In several instances, those were the lowest prices we’ve seen since 2008. The speed of the drop this week should be an early gift for retailers, that will see huge margins that might help them weather the anticipated drop in demand over the coming weeks.

With gasoline cracks dropping nearly eight dollars/barrel on the day, it appears that some U.S. refiners may be forced to act by either reducing run rates, or moving up maintenance, both due to weak economics, and what could turn into containment issues very rapidly if some of the more dire predictions about driving demand come true.

The plunge in gasoline was also a drag on ethanol and RIN values, as both blending economics and demand expectations for bio-fuels took a big hit on the day.

While ULSD prices have been volatile, they’re paling in comparison to gasoline this week. Perhaps the most notable piece of the diesel price action is the forward curve. A month ago, the spread between prompt and three-year forward values was six cents/gallon, and today it’s nearly 43 cents/gallon, demonstrating the market’s anticipation of the demand shock hitting hard, but not lasting very long.

Crude spreads have seen similar moves as diesel. See what Warren Buffett had to say about those spreads and expectations for oil demand.

With all that’s gone on the past two months, it’s easy to forget that at the start of 2020 there were concerns that a war with Iran could send crude oil north of $100/barrel and cripple the world economy. This week, U.S. forces battling with Iranian-back militias is barely even hitting the news wires.

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

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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.

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

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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.

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