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The Energy Complex Continues To Bounce Back And Forth This Week And Have A Mixed Outlook Going Forward

Friday, Jun 24 2022
Market Talk

The energy complex continues to bounce back and forth this week and have a mixed outlook going forward, with Crude Oil falling well below its weekly trend-line, while refined products have managed to stay above theirs.

The technical breakdown in crude, while refined products have managed to hold above their trend lines has sent crack spreads to fresh record highs in some areas, with even the low end estimates putting margins for plants north of $1/gallon. If you think that kind of margin isn’t enough incentive for a refiner to pull out all the stops to run full out, you’ve probably never met anyone in the refining business.

Speaking of which, we didn’t get a DOE status report this week due to a systems issue, but we did get the agency’s annual refinery capacity report. That report highlighted the decline in operable capacity over the past two years that marks the most severe decline since the early 80s and has led to all sorts of straw grasping to try and solve the problem of high fuel prices in an election year. 

The EIA this morning published a note on Global Crude Oil production capacity, showing both the relatively large excess in place today, and predicting a drop in that amount as producers race to bring output back online, something that’s proven difficult this year. That excess crude production capacity goes a long way to explaining why we saw oil prices top out well below their 2008 highs (so far) while the lack of refinery capacity goes a long way to explain why refined products have smashed their previous records.

The National Hurricane Center increased the odds of development for a system churning across the Atlantic to 60% yesterday, but that system still may not pose a threat to the US unless it’s able to shift north before approaching South America. The 2022 season is still expected to be a busy one for hurricanes, even though it’s off to a slow start vs the last two years

RIN Prices continue to slide this week, and have now given back all of the gains made earlier in June when the EPA revised their blending requirements for refiners. Plummeting grain and palm oil prices are getting credit for the slide in RIN and ethanol prices.

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