The 200-day Moving Average Is Back In Play This Week With ULSD Breaking Above That Resistance After It Repelled Friday’s Rally

Market TalkTuesday, Nov 14 2023
Pivotal Week For Price Action

After moving lower through the overnight session, energy futures jumped alongside equities following the October CPI reading that came in below most estimates, adding hope that the FED is done raising rates to combat inflation. The recovery rally of the past 2-days has put charts back in a more neutral footing, easing the oversold condition that had developed during the drop to multi-month lows.  

Of course, that drop in energy prices was a key contributor to the flat CPI reading for the month, with fuel oil prices leading the slide down 21%, while gasoline prices were down 5.3%. Excluding food and energy, the total reading was up .2% on the month and 4% on the year.  

The 200-day moving average is back in play this week with ULSD breaking above that resistance after it repelled Friday’s rally, while WTI is currently stuck right on it. If the contracts can hold above that level there’s a good chance, they could soon break above the bearish trend they’ve been in since Mid-October, while a failure here suggests we’ll see new lows before year-end.

The IEA’s monthly oil market report echoed the bullish demand outlook OPEC reported yesterday, with the agency revising its global consumption estimates higher, primarily due to record oil demand in China. The IEA suggests that China accounts for 75% of the total world demand growth this year, which is estimated at 2.4 million barrels/day, and despite headwinds in developed nations, the agency believes total global oil demand will hit a record in 2024. That increase in demand isn’t great news for everyone however, as the agency notes China’s surge in petrochemical production is putting pressure on other refiners in Europe and Asia.

The good news for consumers is that oil supplies are also poised to hit a record next year, with gains in the US, Brazil and Guyana leading the increases. While Guyana is benefitting from off-shore gushers, its next-door neighbor Venezuela is not expected to see dramatic increases in its output despite the recent easing of sanctions, as it will take years of investment to get that country’s production infrastructure rebuilt. 

While the IEA is bullish on US oil output, the EIA is predicting lower US shale production for a 2nd straight month in its monthly drilling report. The Permian Basin, which accounts for nearly half of all US oil output, continues to see modest gains, while gas-heavy shale basins like the Appalachia and Anadarko are dragging oil output lower according to these estimates. While drilling activity has slowed onshore, US Off-shore production continues to increase this year and is approaching record highs set prior to the pandemic, as the larger-project-producers are acting more confident in the long-term viability of those wells, even as the viability of the Federal lease program is very much in doubt.

Big speculators were adding new bets on lower energy prices last week, once again showing their tendency to jump on the bandwagon a couple of weeks late. WTI, Brent, ULSD and Gasoil all saw a large influx of new short positions, just in time for prices to hit a 3-month low Wednesday and then bounce. RBOB futures were once again moving opposite of the rest of the complex with heavy short covering as the funds (who appear much smarter in retrospect) took profits after prices hit their lows for the year. 

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

Market Talk Update 11.14.2023

News & Views

View All
Pivotal Week For Price Action
Market TalkTuesday, Nov 28 2023

Values For Space On Colonial’s Main Gasoline Line Continue To Drop This Week

The petroleum complex continues to search for a price floor with relatively quiet price action this week suggesting some traders are going to wait and see what OPEC and Friends can decide on at their meeting Thursday. 

Values for space on Colonial’s main gasoline line continue to drop this week, with trades below 10 cents/gallon after reaching a high north of 18-cents earlier in the month. Softer gasoline prices in New York seems to be driving the slide as the 2 regional refiners who had been down for extended maintenance both return to service. Diesel linespace values continue to hold north of 17-cents/gallon as East Coast stocks are holding at the low end of their seasonal range while Gulf Coast inventories are holding at average levels.

Reversal coming?  Yesterday we saw basis values for San Francisco spot diesel plummet to the lowest levels of the year, but then overnight the Chevron refinery in Richmond was forced to shut several units due to a power outage which could cause those differentials to quickly find a bid if the supplier is forced to become a buyer to replace that output.

Money managers continued to reduce the net length held in crude oil contracts, with both Brent and WTI seeing long liquidation and new short positions added last week. Perhaps most notable from the weekly COT report data is that funds are continuing their counter-seasonal bets on higher gasoline prices. The net length held by large speculators for RBOB is now at its highest level since Labor Day, at a time of year when prices tend to drop due to seasonal demand weakness. 

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

Pivotal Week For Price Action
Market TalkMonday, Nov 27 2023

After Another Black Friday Selloff Pushed Energy Futures Sharply Lower In Last Week’s Holiday-Shortened Trading

After another Black Friday selloff pushed energy futures sharply lower in last week’s Holiday-shortened trading, we’re seeing a modest bounce this morning. Since spot markets weren’t assessed Thursday or Friday, the net change for prices since Wednesday’s settlement is still down more than 6-cents for gasoline and almost 5-cents for diesel at the moment.

OPEC members are rumored to be nearing a compromise agreement that would allow African producers a higher output quota. Disagreement over that plan was blamed on the cartel delaying its meeting by 4-days last week which contributed to the heavy selling. The bigger problem may come from Russia, who announced plans last week to increase its oil output once its voluntary cut agreement ends now that price cap mechanisms are proving to be ineffective

While an uneasy truce in Gaza held over the weekend, tensions on the Red Sea continued to escalate with the US Navy intervening to stop another hijacking and being rewarded for its efforts by having missiles fired at one of its ships.  

RIN values came under heavy selling pressure Wednesday afternoon following a court overturning the EPA’s ruling to deny small refinery hardship waivers to the RFS. Those exemptions were a big reason we saw RINs drop sharply under the previous administration, and RINs were already on due to the rapid influx of RD supply this year.

More bad news for the food to fuel lobby: the White House is reportedly stalling plans to allow E15 blending year-round after conflicting studies about ethanol’s ability to actually lower carbon emissions, and fuel prices. Spot prices for ethanol in Chicago reached a 2.5 year low just ahead of the holiday.  

Baker Hughes reported the US oil rig count held steady at 500 active rigs last week, while natural gas rigs increased by 3. 

The first of perhaps several refining casualties caused by the rapid increase in new capacity over the past two years was reported last week. Scotland’s only refinery, which has a capacity of 150mb/day is preparing to shutter in 2025.

The CFTC’s commitment of traders report was delayed due to the holiday and will be released this afternoon.

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

Pivotal Week For Price Action
Market TalkWednesday, Nov 22 2023

Week 47 - US DOE Inventory Recap