ULSD And RBOB Contracts Saw A 2nd Week Of Increases After Nearly 2 Months Of Selling

Market TalkMonday, Nov 20 2023
Pivotal Week For Price Action

The recovery bounce continues for energy prices this morning with refined products leading the way with gains approaching a nickel just before 8am. RBOB gasoline futures are leading the way and are up more than 14 cents after hitting their lows of the year last Thursday. The bearish trend lines on the weekly chart are coming under pressure early but are holding their resistance for now, and will likely prove pivotal in the holiday-shortened trading week. 

Speculators continued to liquidate crude oil positions last week, but ULSD and RBOB contracts saw a 2nd week of increases after nearly 2 months of selling. The exception to the product buying was in the European Gasoil contract which saw a large decline in long positions, suggesting that the big funds have thrown in the towel on their bets of a cold winter driving up European distillate prices. 

Baker Hughes reported an increase of 6 oil rigs drilling in the US last week, the largest weekly increase since February. Don’t get too excited about a resurgence in drilling activity just yet however as the count of natural gas rigs fell by 4, keeping the total count of rigs just 2 above a 20-month low. The Dallas FED’s Texas Employment forecast published Friday also shows a slowdown in well permits in October, suggesting that producers weren’t rushing when prices were close to $90/barrel and will almost certainly take their time after prices dropped to $75.

Black Friday Beware: Thanksgiving is the only set holiday annually where spot markets won’t publish for 2 straight days. While the cash markets (and most offices will be closed) futures will continue to trade in abbreviated sessions both Thursday and Friday, with a settlement Friday. It’s worth noting that we’ve seen double digit sell-offs in refined product futures in each of the past two years between Wednesday and Monday’s settlements, and there’s typically a huge hangover effect on demand following the pre-holiday run-up.   

The Marathon Refinery in Texas City which holds the most TCEQ frequent flier miles with 37 reported upsets in the past year was having a good run, making it nearly a month before reporting 2 more process hiccups in 8 days. Neither event seems major, and based on the continued selloff in USGC basis values, no-one is too concerned about supply shortages.  There have been a handful of other reported upsets in the past week, but several seem to be involving unit startups after the busy fall maintenance season, suggesting more barrels are coming back online during these flaring events than being taken off.

Meanwhile, Marathon’s Martinez CA refinery reminded us that renewable production can be dangerous too after a weekend fire sent one person to the hospital. It’s unclear what impact the fire may have on the sites RD production, but the air-quality alerts were lifted overnight.

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Market Talk Update 11.20.2023

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Pivotal Week For Price Action
Market TalkTuesday, Nov 28 2023

Values For Space On Colonial’s Main Gasoline Line Continue To Drop This Week

The petroleum complex continues to search for a price floor with relatively quiet price action this week suggesting some traders are going to wait and see what OPEC and Friends can decide on at their meeting Thursday. 

Values for space on Colonial’s main gasoline line continue to drop this week, with trades below 10 cents/gallon after reaching a high north of 18-cents earlier in the month. Softer gasoline prices in New York seems to be driving the slide as the 2 regional refiners who had been down for extended maintenance both return to service. Diesel linespace values continue to hold north of 17-cents/gallon as East Coast stocks are holding at the low end of their seasonal range while Gulf Coast inventories are holding at average levels.

Reversal coming?  Yesterday we saw basis values for San Francisco spot diesel plummet to the lowest levels of the year, but then overnight the Chevron refinery in Richmond was forced to shut several units due to a power outage which could cause those differentials to quickly find a bid if the supplier is forced to become a buyer to replace that output.

Money managers continued to reduce the net length held in crude oil contracts, with both Brent and WTI seeing long liquidation and new short positions added last week. Perhaps most notable from the weekly COT report data is that funds are continuing their counter-seasonal bets on higher gasoline prices. The net length held by large speculators for RBOB is now at its highest level since Labor Day, at a time of year when prices tend to drop due to seasonal demand weakness. 

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Pivotal Week For Price Action
Market TalkMonday, Nov 27 2023

After Another Black Friday Selloff Pushed Energy Futures Sharply Lower In Last Week’s Holiday-Shortened Trading

After another Black Friday selloff pushed energy futures sharply lower in last week’s Holiday-shortened trading, we’re seeing a modest bounce this morning. Since spot markets weren’t assessed Thursday or Friday, the net change for prices since Wednesday’s settlement is still down more than 6-cents for gasoline and almost 5-cents for diesel at the moment.

OPEC members are rumored to be nearing a compromise agreement that would allow African producers a higher output quota. Disagreement over that plan was blamed on the cartel delaying its meeting by 4-days last week which contributed to the heavy selling. The bigger problem may come from Russia, who announced plans last week to increase its oil output once its voluntary cut agreement ends now that price cap mechanisms are proving to be ineffective

While an uneasy truce in Gaza held over the weekend, tensions on the Red Sea continued to escalate with the US Navy intervening to stop another hijacking and being rewarded for its efforts by having missiles fired at one of its ships.  

RIN values came under heavy selling pressure Wednesday afternoon following a court overturning the EPA’s ruling to deny small refinery hardship waivers to the RFS. Those exemptions were a big reason we saw RINs drop sharply under the previous administration, and RINs were already on due to the rapid influx of RD supply this year.

More bad news for the food to fuel lobby: the White House is reportedly stalling plans to allow E15 blending year-round after conflicting studies about ethanol’s ability to actually lower carbon emissions, and fuel prices. Spot prices for ethanol in Chicago reached a 2.5 year low just ahead of the holiday.  

Baker Hughes reported the US oil rig count held steady at 500 active rigs last week, while natural gas rigs increased by 3. 

The first of perhaps several refining casualties caused by the rapid increase in new capacity over the past two years was reported last week. Scotland’s only refinery, which has a capacity of 150mb/day is preparing to shutter in 2025.

The CFTC’s commitment of traders report was delayed due to the holiday and will be released this afternoon.

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Pivotal Week For Price Action
Market TalkWednesday, Nov 22 2023

Week 47 - US DOE Inventory Recap