U.S. Equity Markets Rally To Record Highs
U.S. equity markets are rallying to new record highs this week, and energy markets are trying to follow them as trading winds down for this most unusual year.
The house of representatives approved an increase in stimulus checks, sending that bill to the Senate today for approval. The House also voted to override the president’s veto of the latest defense spending bill, encouraging markets that the dollar printing presses won’t be slowing down anytime soon. Extra liquidity/aka stimulus pushes down the value of the dollar, which is correlating to stronger commodity prices, a phenomenon that had gone largely dormant, but was a major force in markets for years following the 2008 financial crisis.
While the news from Washington has Wall Street in Risk On mode, the reaction so far in energy markets is relatively muted with the complex seeming to have entered a period of sideways trading after seven weeks of gains. Most technical indicators have moved into neutral territory, which should keep the action choppy but aimless until we see the range set over the past week broken. For WTI that’s a move above $49 or below $46. For RBOB gasoline that will mean a break above $1.40 or below $1.30, and for ULSD the range seems to be set from $1.42 to $1.52.
Numerous mobility tracking data sets have become popular since the start of COVID-related shutdowns and the driving-specific data points have become a decent proxy for gasoline demand. The 2 charts below show both the seasonal slowdown, and the near-halt in movement over Christmas. The second chart also shows how two major metro areas (LA and Dallas Counties) see similar trajectories, but different demand outlooks based on their stay-at-home orders, or lack thereof.
Money managers continued to increase their bets on higher gasoline and crude oil prices last week according to the CFTC’s weekly report, but cut their length in diesel contracts. The net length held by the large speculative category of traders reached their highest levels since COVID hit the U.S. In other words, hedge funds like betting on higher gasoline prices when RBOB is trading around $1.40 than they did in April when prices were trading below $.50, or at the start of November when they were sub $1.
There’s a similar bullish enthusiasm being noted in U.S. equity markets as borrowing to invest reaches new records even after many stocks are already trading at all-time highs. This type of sentiment extreme can be seen as a contrary indicator since at some point the market runs out of new money to keep pushing prices higher, and leveraged liquidation can be particularly volatile.
Click here to download a PDF of today's TACenergy Market Talk.
Latest Posts
Week 16 - US DOE Inventory Recap
Energy Markets Trading Quietly In The Red As Ethanol Prices Rally To Five-Month High
The Struggle For Renewable Producers Continues As A Rapid Influx Of Supply And Crashing Credit Prices Make Biodiesel
After Years Of Backwardation, Diesel Prices Have Slipped Into Contango Over The Past Week
Social Media
News & Views
View All
Week 16 - US DOE Inventory Recap
Energy Markets Trading Quietly In The Red As Ethanol Prices Rally To Five-Month High
Energy markets are trading quietly in the red to start Wednesday’s session after a healthy bounce Tuesday afternoon suggested the Israel-Iran-linked liquidation had finally run its course.
There are reports of more Ukrainian strikes on Russian energy assets overnight, but the sources are sketchy so far, and the market doesn’t seem to be reacting as if this is legitimate news.
Ethanol prices have rallied to a 5-month high this week as corn and other grain prices have rallied after the latest crop progress update highlighted risks to farmers this year, lower grain export expectations from Ukraine, and the approval of E15 blends this summer despite the fact it pollutes more. The rally in grain and renewables prices has also helped RIN values find a bid after it looked like they were about to test their 4-year lows last week.
The API reported small changes in refined product inventories last week, with gasoline stocks down about 600,000, while distillates were up 724,000. Crude oil inventories increased by 3.2 million barrels according to the industry-group estimates. The DOE’s weekly report is due out at its normal time this morning.
Total reported another upset at its Port Arthur refinery that’s been a frequent flier on the TCEQ alerts since the January deep freeze knocked it offline and damaged multiple operating units. This latest upset seems minor as the un-named unit impacted was returned to normal operations in under an hour. Gulf Coast basis markets have shrugged off most reports of refinery upsets this year as the region remains well supplied, and it’s unlikely we’ll see any impact from this news.
California conversely reacted in a big way to reports of an upset at Chevron’s El Segundo refinery outside of LA, with CARBOB basis values jumping by more than a dime. Energy News Today continued to show its value by reporting the upset before the flaring notice was even reported to area regulators, proving once again it’s ahead of the curve on refinery-related events. Another industry news outlet meanwhile struggled just to remember where the country’s largest diesel seller is located.
Click here to download a PDF of today's TACenergy Market Talk
The Struggle For Renewable Producers Continues As A Rapid Influx Of Supply And Crashing Credit Prices Make Biodiesel
The sigh of relief selloff continues in energy markets Tuesday morning, with gasoline prices now down more than 20 cents in 7 sessions, while diesel prices have dropped 26 cents in the past 12. Crude oil prices are within a few pennies of reaching a 1 month low as a lack of headlines from the world’s hot spots allows some reflection into the state of the world’s spare capacity for both oil and refined products.
Gasoline prices are trading near a 6-week low this morning, but still need to fall about another nickel in order to break the weekly trendline that pushed prices steadily higher since December. If that trend breaks, it will be safer to say that we saw the end of the spring gasoline rally on April 12th for the 2nd year in a row. Last year RBOB futures peaked on April 12 at $2.8943 and bottomed out on May 4th at $2.2500. The high (at this point) for this year was set on April 12th at $2.8516, and the low overnight was $2.6454.
It’s not just energy commodities that are seeing an unwind of the “flight to safety” trade: Gold prices had their biggest selloff in 2 years Monday and continue to point lower today. Just how much money poured into commodities in the weeks leading up to the direct confrontation between Israel and Iran is unclear, but we have seen in year’s past that these unwind-events can create a snowball effect as traders can be forced to sell to cover their margin calls.
Supply > Demand: The EIA this morning highlighted the record setting demand for natural gas in the US last year, which was not nearly enough to offset the glut of supply that forced prices to a record low in February. A shortage of natural gas in Europe was a key driver of the chaotic markets that smashed just about every record in 2022, and an excess of natural gas supply in Europe and the US this year is acting as a buffer, particularly on diesel prices.
The struggle for renewable producers continues as a rapid influx of supply and crashing credit prices make Biodiesel, RD and SAF unprofitable for many. In addition to the plant closures announced in the past 6 months, Vertex Energy reported Monday it’s operating its Renewable Diesel facility in Mobile AL at just 50% of capacity in Q1. The truly scary part for many is that the $1/gallon Blender's tax credit ends this year and is being replaced by the “Clean” Fuel production credit that forces producers to prove their emissions reductions in order to qualify for an increased subsidy. It’s impossible to say at this point how much the net reduction will be for domestic producers, but importers will get nothing, and at current CI values, many biodiesel producers may see their “blend credit” cut by more than half.
Click here to download a PDF of today's TACenergy Market Talk.