The Sellers Have Returned To The Energy Arena After Monday’s Rally Attempt Fizzled

Market TalkTuesday, Dec 12 2023
Pivotal Week For Price Action

The sellers have returned to the energy arena after Monday’s rally attempt fizzled, leaving the complex near the bottom end of its recent range, and threatening another move lower if the lows from last week are taken out.

It’s not just futures coming under pressure. Gulf Coast diesel basis, the most liquid market for ULSD in the world, plummeted to a 44-cent discount to futures Monday. Those huge discounts would surpass the largest on record for prompt barrels, noting that there were times during the 2022 time spread chaos when calculated values were lower vs prompt futures after Gulf Coast cycles had rolled to the next month. Those big negative values are punishing crack spreads for regional refiners that are seeing their lowest margins in nearly 3- years. The outlook is challenging with the upcoming holiday diesel demand destruction, Mid-Continent values not offering an outlet, bottlenecks restricting flows to the East Coast and through the Panama Canal, along with more competition for exports all suggesting it could be a tough winter for refiners after a record-setting 2-year run. 

For consumers, these lower differentials combined with futures at multi-month lows offer a great opportunity to lock in fuel prices for a year or more well below budgeted levels.

Value for space on Colonial’s mainline were moving in opposite directions Monday. Gasoline (line 1) values dropped sharply to a 4-cent premium, while diesel (line 2) values jumped again thanks to the slump in gulf coast basis differentials. A new challenge for shippers looking to take advantage of the Gulf Coast to New York arb has appeared this week as line 3 values (which you won’t find published) have also jumped to double digit premiums as space to move barrels to New Jersey has rapidly been used up. 

The November CPI reading came in at .1% for the month and 3.1% for the year, continuing the recent trend of cooling inflation that’s had equity and bond markets rallying over the past month. As has been the case for much of the year, energy prices are acting as the biggest check on inflation, with gasoline prices down nearly 9% for the year while fuel oil is down nearly 25%, which takes nearly a full percent off of the total CPI reading. Outside of energy prices, the only meaningful decline in the CPI reading comes from used vehicles, which are down 3.8% for the year. Equity and energy prices didn’t have a big reaction to the CPI report as it was largely in line with published estimates.

Cop Out? The COP 28 climate summit appears headed to overtime as negotiators argue over whether or not to explicitly state intentions to phase out fossil fuels. Meanwhile, the EIA this morning highlighted the race to expand export facilities for LNG in the US, as natural gas continues to prove the fossil fuel most readily available to replace dirtier options like coal if only there were enough infrastructure to send it where it needs to go.

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Market Talk Update 12.12.2023

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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