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The First 4.5 Trading Days Of March Have Smashed Records For Daily Price Swings And Increases

Monday, Mar 7 2022
Market Talk

Good news: gasoline prices are down 28 cents and diesel prices are down 33 cents from where they were trading last night. 

Bad news: both contracts reached record highs last night in the first few minutes of trading, and are still showing large gains from Friday despite the pullback. 

The first 4.5 trading days of March have smashed records for daily price swings and increases as the world comes to grips with the idea that there is no short term solution to replace Russian petroleum supplies, making the risk of both volatility and government intervention higher than ever.  For both ULSD and RBOB, these would be the largest monthly gains on record if prices hold, and we’re not even through a full week yet. 

For ULSD, we’ve already seen the biggest monthly trading range ($1.30/gallon) in just 4.5 days of trading, while the RBOB range of $.95 ranks third all-time behind the March 2020 and December 2008 market meltdowns that both surpassed $1/gallon. 

An official Russian oil embargo (vs the current unofficial and voluntary embargo) was floated over the weekend, while renewed negotiations to reduce sanctions and increase oil output with both Iran and Venezuela seem to be going nowhere, and both seem to be factors in the latest price spike.    

Already, even though energy products aren’t officially sanctioned (yet), we’re seeing dramatic signs of the impact a lack of international buyers is having on its refining operations, as plants are forced to cut run rates and halt crude intake due to a lack of storage for their production. Refinery maintenance and upgrades are also expected to be hampered without access to foreign technology.   

Regional supplies in the US have been disrupted over the past two weeks by a pair of Kinder Morgan pipeline issues, and a handful of (so far minor) refinery disruptions. The coastal markets remain tight in general, while inland markets remain well supplied, and lacking transportation to help alleviate their glut, and/or take advantage of the record spreads from the middle of the country to the edges.

RIN values pulled back on Friday, even as Corn, Soybean (and refined product) prices continued to spike.  A “news” article suggesting the White House was considering a biofuel waiver to help curb food inflation seems to have been the driver of that selling. Other non-food-based environmental credits like the European EUA’s, and California’s LCFS and CCA credits are all seeing heavy selling as expectations rise for both demand destruction, and a change of heart from governments that just a few weeks ago still thought having clean energy was more important than having energy. 

Short covering was the theme of the week for money managers, that saw large reductions in the short positions held in energy futures. WTI and Brent saw some modest new length enter the market, but the lack of “piling on” at least in the first two days of the week when the CFTC data is collected, suggested these huge swings may be too hot to handle, even for the big speculators.

Baker Hughes reported a decline of 3 oil rigs working in the US last week, snapping a 5 week streak of increases. Natural gas rigs increased by 3, the 9th straight week of gains for natural gas focused drilling.

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