Technical Traders Push Late-Week Rally Into Monday Morning

Market TalkMonday, May 8 2023
Pivotal Week For Price Action

The recovery rally continues for energy futures with ULSD up 22 cents from last Thursday’s low trade, while RBOB is up more than 17 cents, and WTI has earned back nearly $10/barrel. 

Besides the double-edged sword of a healthy April jobs report, there hasn’t been much in the way of news to pin this rally on, so it feels more technical in nature than anything fundamental. Bulls will say that the market overshot to the downside in a fear-driven sell-off setting the stage for a much bigger rally, while bears may argue this is a dead cat bounce, and we’re still set up for more selling ahead. 

Weekly charts suggest that the bear market for distillates is still intact, and we’ll need to see a move back closer to $1.50 to break the downward trend that took futures from $4.68 in October to $2.15 last week. A big part of that decline in futures has been a collapse in the forward curve from extreme backwardation last fall to a gentle contango in the front of the curve today.  

Betting on a collapse: The CFTC’s weekly COT report showed another big influx of speculative funds betting on lower energy prices as of last Tuesday, pushing ULSD to a net-short position for the first time since November 2020. Whether or not we see those new shorts accumulated during the past few weeks get squeezed out by this bounce in prices since that report was released may go a long way in determining whether or not the rally continues. Producers have been reducing their hedges during this sell-off, with diesel hedges dropping to a 3.5 year low in another sign that the big physical players still see upside potential for prices ahead.

Baker Hughes reported a drop of 3 oil rigs, and 4 natural gas rigs in the US last week as producers continue to shy away from spending at current values. The Permian basin accounted for the majority of the decline last week, with a decrease of 5 rigs.

A fire hit Shell’s chemical facility in Deer Park TX Friday, and reignited over the weekend forcing the company to dump excess waste water into the Houston ship channel. So far it doesn’t appear to have impacted operations at the adjacent Deer Park refinery that Shell used to own, and so should be a non-factor on refined product prices.

Nigeria announced it would be commissioning the world’s largest single-train refinery in 2 weeks, which could add another 650mb/day of refining capacity to the Atlantic basin. Then again, many view the “grand opening” as more of a political stunt on behalf of the outgoing president, with actual output not actually expected soon. If true, that would be similar to what we’ve seen at Mexico’s Dos Bocas refinery which was commissioned nearly a year ago, but still isn’t producing refined products.

Today’s interesting read from the FT. Why tax incentives are driving new clean energy commitments.

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Market Talk Update 05.08.2023

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Market TalkFriday, Jul 19 2024

Summertime-Friday-Apathy Trade Influencing Energy Markets

Energy markets are treading water to start the day as the Summertime-Friday-Apathy trade seems to be influencing markets around the world in the early going. RBOB futures are trying for a 3rd straight day of gains to wipe out the losses we saw to start the week, while ULSD futures continue to look like the weak link, trading lower for a 2nd day and down nearly 3 cents for the week.

Bad to worse: Exxon’s Joliet refinery remains offline with reports that repairs may take through the end of the month. On top of that long delay in restoring power to the facility, ENT reported this morning that the facility has leaked hydrogen fluoride acid gas, which is a dangerous and controversial chemical used in alkylation units. Chicago basis values continue to rally because of the extended downtime, with RBOB differentials approaching a 50-cent premium to futures, which sets wholesale prices just below the $3 mark, while ULSD has gone from the weakest in the country a month ago to the strongest today. In a sign of how soft the diesel market is over most of the US, however, the premium commanded in a distressed market is still only 2 cents above prompt futures.

The 135mb Calcasieu Refinery near Lake Charles LA has been taken offline this morning after a nearby power substation went out, and early reports suggest repairs will take about a week. There is no word yet if that power substation issue has any impacts on the nearby Citgo Lake Charles or P66 Westlake refineries.

Two tanker ships collided and caught fire off the coast of Singapore this morning. One ship was a VLCC which is the largest tanker in the world capable of carrying around 2 million barrels. The other was a smaller ship carrying “only” 300,000 barrels (roughly 12 million gallons) of naphtha. The area is known for vessels in the “dark fleet” swapping products offshore to avoid sanctions, so a collision isn’t too surprising as the vessels regularly come alongside one another, and this shouldn’t disrupt other ships from transiting the area.

That’s (not) a surprise: European auditors have determined the bloc’s green hydrogen goals are unattainable despite billions of dollars of investment, and are based on “political will” rather than analysis. Also (not) surprising, the ambitious plans to build a “next-gen” hydrogen-powered refinery near Tulsa have been delayed.

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

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Market TalkThursday, Jul 18 2024

Refined Products Stanch Bleeding Despite Inventory Builds And Demand Slump

Refined products are trading slightly lower to start Thursday after they stopped the bleeding in Wednesday’s session, bouncing more than 2 cents on the day for both RBOB and ULSD, despite healthy inventory builds reported by the DOE along with a large slump in gasoline demand.

Refinery runs are still above average across the board but were pulled in PADD 3 due to the short-term impacts of Beryl. The Gulf Coast region is still outpacing the previous two years and sitting at the top end of its 5-year range as refiners in the region play an interesting game of chicken with margins, betting that someone else’s facility will end up being forced to cut rates before theirs.

Speaking of which, Exxon Joliet was reportedly still offline for a 3rd straight day following weekend thunderstorms that disrupted power to the area. Chicago RBOB basis jumped by another dime during Wednesday’s session as a result of that downtime. Still, that move is fairly pedestrian (so far) in comparison to some of the wild swings we’ve come to expect from the Windy City. IIR via Reuters reports that the facility will be offline for a week.

LA CARBOB differentials are moving in the opposite direction meanwhile as some unlucky seller(s) appear to be stuck long and wrong as gasoline stocks in PADD 5 reach their highest level since February, and held above the 5-year seasonal range for a 4th consecutive week. The 30-cent discount to August RBOB marks the biggest discount to futures since 2022.

The EIA Wednesday also highlighted its forecast for rapid growth in “Other” biofuels production like SAF and Renewable Naptha and Propane, as those producers capable of making SAF instead of RD can add an additional $.75/gallon of federal credits when the Clean Fuels Producer’s Credit takes hold next year. The agency doesn’t break out the products between the various “Other” renewable fuels, but the total projected output of 50 mb/day would amount to roughly 2% of total Jet Fuel production if it was all turned to SAF, which of course it won’t as the other products come along for the ride similar to traditional refining processes.

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Pivotal Week For Price Action
Market TalkWednesday, Jul 17 2024

Week 28 - US DOE Inventory Recap