The Rally In Energy Prices Ran Out Of Steam Wednesday

Market TalkThursday, Apr 4 2024
Pivotal Week For Price Action

The rally in energy prices ran out of steam Wednesday, with most contracts limping across the finish line after touching multi-month highs in the morning, and have started out Thursday’s session with modest losses. Weekly charts continue to favor higher prices for both gasoline and crude oil contracts with just a couple of weeks remaining until we reach the typical peaking window for the spring gasoline rally, while diesel prices still look like the weakest link despite rallying by 20 cents in just 3 days.

OPEC’s monitoring committee met Wednesday and did not recommend any changes to its output cut plans (as was expected) but did note that Iraq and Kazakhstan had agreed to compensate for previous overproduction, and Russia was agreeing to base its cuts on actual production instead of based on exports. Whether or not that has anything to do with Kazakh production being hampered by the Caspian Sea oil spill, or Russia’s production being hampered by a lack of domestic refinery demand and limited capacity to export more crude is a matter for speculation at this point.

Gasoline inventories continue their typical seasonal slide in most regions, with an exaggerated decline in PADD 5 helping to spur the rally in LA and San Francisco basis values which saw another big increase Wednesday. PADD 3 is the exception to the rule with Gulf Coast gasoline increasing counter-seasonally for a 2nd week, which is helping to drive up values for space on Colonial’s main gasoline line which continue to rally this week. The Coast Guard already has 2 temporary shipping channels open in Baltimore, so it seems the strength in linespace values is more of a push from Gulf Coast refiners who need to find a home for their excess rather than a pull from further up the line.

Diesel exports saw a large increase last week, reaching a 6-month high in what may be an early sign of buyers needing to find replacements for the cheap Russian barrels they’d been exploiting for the past couple of years. A Reuters article this morning highlights how sanctions are complicating the repair efforts on Russian refineries – even before the drone attacks began – and may contribute to a tick up in US export volumes this year.

The EIA highlighted its new Renewable Diesel shipment data this morning, which shows the rapid increase of shipments to the West Coast as more production from Gulf Coast refineries ramped up over the past couple of years. The agency still does not include renewable diesel inventories in its weekly petroleum status report however, so PADD 5 diesel inventories show up as a very low 12 million barrels, when in reality they’re closer to 17 million barrels, which is well above normal levels.

The lack of RD in the weekly stats also means that the total US Demand estimate for diesel is understated by somewhere around 5%, which is good news for suppliers stressing out over the very weak figures that have held below the 5-year seasonal range for most of the year so far. Still no word on when the EIA will update the weekly survey to show the product that now makes up a majority of the diesel used on the west coast, but if the ethanol example from 15 years ago is an indicator, it may be a year or more before those figures are included.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.

Market Talk Update 04.04.2024

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Pivotal Week For Price Action
Market TalkFriday, May 17 2024

The Recovery Rally In Energy Markets Continues For A 3rd Day

The recovery rally in energy markets continues for a 3rd day with refined product futures both up more than a dime off of the multi-month lows we saw Wednesday morning. The DJIA broke 40,000 for the first time ever Thursday, and while it pulled back yesterday, US equity futures are suggesting the market will open north of that mark this morning, adding to the sends of optimism in the market.

Despite the bounce in the back half of the week, the weekly charts for both RBOB and ULSD are still painting a bearish outlook with a lower high and lower low set this week unless the early rally this morning can pick up steam in the afternoon. It does seem like the cycle of liquidation from hedge funds has ended however, so it would appear to be less likely that we’ll see another test of technical support near term after this bounce.

Ukraine hit another Russian refinery with a drone strike overnight, sparking a fire at Rosneft’s 240mb/day Tuapse facility on the black sea. That plant was one of the first to be struck by Ukrainian drones back in January and had just completed repairs from that strike in April. The attack was just one part of the largest drone attack to date on Russian energy infrastructure overnight, with more than 100 drones targeting power plants, fuel terminals and two different ports on the Black Sea. I guess that means Ukraine continues to politely ignore the White House request to stop blowing up energy infrastructure in Russia.

Elsewhere in the world where lots of things are being blown up: Several reports of a drone attack in Israel’s largest refining complex (just under 200kbd) made the rounds Thursday, although it remains unclear how much of that is propaganda by the attackers and if any impact was made on production.

The LA market had 2 different refinery upsets Thursday. Marathon reported an upset at the Carson section of its Los Angeles refinery in the morning (the Carson facility was combined with the Wilmington refinery in 2019 and now reports as a single unit to the state, but separately to the AQMD) and Chevron noted a “planned” flaring event Thursday afternoon. Diesel basis values in the region jumped 6 cents during the day. Chicago diesel basis also staged a recovery rally after differentials dropped past a 30 cent discount to futures earlier in the week, pushing wholesale values briefly below $2.10/gallon.

So far there haven’t been any reports of refinery disruptions from the severe weather than swept across the Houston area Thursday. Valero did report a weather-related upset at its Mckee refinery in the TX panhandle, although it appears they avoided having to take any units offline due to that event.

The Panama Canal Authority announced it was increasing its daily ship transit level to 31 from 24 as water levels in the region have recovered following more than a year of restrictions. That’s still lower than the 39 ships/day rate at the peak in 2021, but far better than the low of 18 ships per day that choked transit last year.

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

Pivotal Week For Price Action
Market TalkThursday, May 16 2024

Energy Prices Found A Temporary Floor After Hitting New Multi-Month Lows Wednesday

Energy prices found a temporary floor after hitting new multi-month lows Wednesday morning as a rally to record highs in US equity markets and a modestly bullish DOE report both seemed to encourage buyers to step back into the ring.

RBOB and ULSD futures both bounced more than 6 cents off of their morning lows, following a CPI report that eased inflation fears and boosted hopes for the stock market’s obsession of the FED cutting interest rates. Even though the correlation between energy prices and equities and currencies has been weak lately, the spillover effect on the bidding was clear from the timing of the moves Wednesday.

The DOE’s weekly report seemed to add to the optimism seen in equity markets as healthy increases in the government’s demand estimates kept product inventories from building despite increased refinery runs.

PADD 3 diesel stocks dropped after large increases in each of the past 3 weeks pushed inventories from the low end of their seasonal range to average levels. PADD 2 inventories remain well above average which helps explain the slump in mid-continent basis values over the past week. Diesel demand showed a nice recovery on the week and would actually be above the 5 year average if the 5% or so of US consumption that’s transitioned to RD was included in these figures.

Gasoline inventories are following typical seasonal patterns except on the West Coast where a surge in imports helped inventories recover for a 3rd straight week following April’s big basis rally.

Refiners for the most part are also following the seasonal script, ramping up output as we approach the peak driving demand season which unofficially kicks off in 10 days. PADD 2 refiners didn’t seem to be learning any lessons from last year’s basis collapse and rapidly increased run rates last week, which is another contributor to the weakness in midwestern cash markets. One difference this year for PADD 2 refiners is the new Transmountain pipeline system has eroded some of their buying advantage for Canadian crude grades, although those spreads so far haven’t shrunk as much as some had feared.

Meanwhile, wildfires are threatening Canada’s largest oil sands hub Ft. McMurray Alberta, and more than 6,000 people have been forced to evacuate the area. So far no production disruptions have been reported, but you may recall that fires in this region shut in more than 1 million barrels/day of production in 2016, which helped oil prices recover from their slump below $30/barrel.

California’s Air Resources Board announced it was indefinitely delaying its latest California Carbon Allowance (CCA) auction – in the middle of the auction - due to technical difficulties, with no word yet from the agency when bidders’ security payments will be returned, which is pretty much a nice microcosm for the entire Cap & Trade program those credits enable.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.

Pivotal Week For Price Action
Market TalkWednesday, May 15 2024

Week 19 - US DOE Inventory Recap