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The Bulls Took Back Control Of Energy Futures

Friday, Oct 8 2021
Market Talk

The bulls took back control of energy futures Thursday, with refined products bouncing 10 cents off of their early morning lows, and trading up to within a few cents of the 7 year highs set earlier in the week overnight. That bounce is a reminder that supply shortages rarely have short term solutions, and the squeeze we’re seeing in many parts of the world may well get worse this winter before it gets better.  From a technical perspective, all that matters short term is whether or not the highs set earlier this week can hold resistance. If they break, there’s room to run on the charts, and we could soon be talking about crude pushing the $90/barrel mark, and products adding another 20-30 cents/gallon.

The good news is natural Gas prices around the world have pulled back sharply from record highs this week. The not so good news, is that pullback came after Russia suggested it can help alleviate the shortages…for a nominal fee of course, and as China has ordered coal miners to increase output. When you stop and think about it, it’s actually pretty wild that in major producing nations (like the US & Russia) natural gas is still being burned off because there’s more supply than capacity to get that fuel to the market, while other parts of the world are struggling to keep the lights on because they don’t have enough supply. 

Speaking of which, the IEA published a report suggesting that methane emissions from flaring and leaks is the low hanging fruit of the climate agenda, something that can make a meaningful improvement on emissions, in a short amount of time and in a cost effective manner.

Add another supply bottleneck to the growing list: Spot ethanol prices in the New York Harbor have surged to $2.90/gallon this week as logistical bottlenecks continue to hamper the movement of mandated fuels.  Meanwhile, it was another busy day in the RIN arena, with D6 values dropping 12 cents in the early morning, only to bounce 10 cents by the afternoon.  Then again, considering RBOB prices also bounced by 10 cents from their overnight lows, the RIN movement seems relatively tame. 

That doesn’t make cents: The shutdown of Kinder Morgan’s pipeline FKA Plantation finally made national news Thursday as restart efforts were delayed until the weekend. The reporter(s) seemed to get their dollars and cents mixed up however, when suggesting that NYH gasoline prices were up 50 cents on the day, trading $7.50/gallon over futures, implying outright prices nearing $10/gallon. Don’t rush out and fill up your Rubbermaid totes with gasoline! In reality, NYH spots are trading 6-7 cents/gallon over futures and those diffs were up 50 points.  The shutdown has barely caused a ripple in basis markets, nor has it caused space on Colonial to start trading at a positive value, suggesting traders expect supplies will return to normal in a few days. Don’t blame the reporters however, with most of the world focused on a shortage of (natural) gas supplies, it’s easy to get the two mixed up. 

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