ULSD Futures Contract Continued To Smash Records And Reset Charts Thursday

Market TalkFriday, Apr 29 2022
Pivotal Week For Price Action

The runaway train known as the May ULSD futures contract continued to smash records and reset charts Thursday, reaching a new all-time high of $5.22, which is more than $1/gallon above the high set in 2008, and 55 cents above the high set earlier in March. 

It’s the last trading day for May RBOB and ULSD futures, so for those in the NY Harbor and Group 3 based markets that haven’t already switched over to referencing June futures, you’ll want to be sure to watch the HOM and RBM contracts for direction today. 

Usually an expiring contract in a volatile month can bring some fireworks on the last few trading sessions, and we certainly saw that in Thursday’s action with the May contract smashing all-time records and trading $1/gallon above June. Overnight we saw the opposite however as it took more than 12 hours for the first trade in the May HO contract to happen.   

With open interest at decade lows as extreme volatility and backwardation (which led the CME group to increase margins this week) appear to be keeping many traders on the sideline, volume should be extremely low today so we could see hardly any trading, but there may be huge price swings if anyone needs to get something done.

The US dollar has surged to a 20 year high this week, as rising interest rates and a flight to safety have international dollars pouring into the us. (So much for those plans to replace the dollar with Yuan…) While obviously that’s not slowing down diesel prices any, the dollar strength could end up slowing the energy rally if it breaks the back of international buyers now facing a double whammy of record high fuel prices and their own currencies devaluing vs the dollar.   

Bottom line, prices are simply becoming unaffordable, if supply is available in the first place, which is going to hit demand in a big way.  Anecdotal evidence of this: employees of a major oil company were complaining yesterday about how much it cost them to fill up.  That actually happened.

RIN prices (and your grocery bill) continue to surge as the various edible oils used to make “advanced” biofuels are being hoarded by countries scared about feeding their people. 

No surprise that quarterly earnings reports this week are showing huge profits for oil producers and most refiners less than 2 years after the industry was left for dead. Considering that prices didn’t really rally until the 3rd month of the quarter, things are looking even better for Q2, although the inflationary impact of the war is giving plenty of reason for concern further out into the future.  

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Market Talk Update 4.29.22

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Most Energy Contracts Are Ticking Lower For A 2nd Day After A Trickle Of Selling Picked Up Steam Tuesday

Most energy contracts are ticking lower for a 2nd day after a trickle of selling picked up steam Tuesday. ULSD futures are down a dime from Monday’s highs and RBOB futures are down 7 cents.

Diesel prices continue to look like the weak link in the energy chain, with futures coming within 1 point of their March lows overnight, setting up a test of the December lows around $2.48 if that resistance breaks down. Despite yesterday’s slide, RBOB futures still look bullish on the weekly charts, with a run towards the $3 mark still looking like a strong possibility in the next month or so.

The API reported crude stocks increased by more than 9 million barrels last week, while distillates were up 531,000 and gasoline stocks continued their seasonal decline falling by 4.4 million barrels. The DOE’s weekly report is due out at its normal time this morning.

RIN values have recovered to their highest levels in 2 months around $.59/RIN for D4 and D6 RINs, even though the recovery rally in corn and soybean prices that had helped lift prices off of the 4 year lows set in February has stalled out. Expectations for more biofuel production to be shut in due to weak economics with lower subsidy values seems to be encouraging the tick higher in recent weeks, although prices are still about $1/RIN lower than this time last year.

Reminder that Friday is one of only 3 annual holidays in which the Nymex is completely shut, so no prices will be published, but it’s not a federal holiday in the US so banks will be open.

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

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Market TalkTuesday, Mar 26 2024

Refined Products Seeing Small Losses Of Around A Penny While Crude Oil Contracts Hover Just Above Break Even

Energy futures are taking a breather to start Tuesday’s trading, with refined products seeing small losses of around a penny while crude oil contracts hover just above break even.

No new news on either the Red Sea shipping or Russian Refining attacks this morning, so Cocoa prices seem to be taking over the commodity headlines while energy markets wait on their next big move.

RBOB gasoline futures set a new 6-month high Monday at $2.7711, which leaves the door open on the weekly charts for the spring rally to continue. A run at the $3 mark is certainly possible in the next few weeks before the typical seasonal price peak is set just before the start of driving season.

A container ship lost power and crashed into the Francis Scott Key bridge in Baltimore this morning, causing a devastating collapse. While cargo shipping into the area will no doubt be impacted by this event, fuel supplies are unlikely to see any notable change since the 9 fuel terminals in Baltimore are primarily supplied by Colonial pipeline. Barges from Philadelphia refineries do supplement Baltimore supplies at times, and those vessel flows will be impacted at least until rescue operations are completed and the bridge sections removed from the waterway. That said, since shipping up from the Gulf Coast via Colonial is generally cheaper than shipping an NY Harbor-priced barrel south, the amount of supply disrupted by this event will be minimal.

While we’re still waiting on the official forecasts for the Atlantic Hurricane season, early reports continue to suggest that we could be in for a very busy year due to warm water temperatures and a forming La Nina pattern.

Dallas meanwhile is preparing for a different sort of disruption, with city officials encouraging companies to let employees work from home during the solar eclipse on April 8th as metroplex traffic is expected to surge. While some isolated fuel outages are certainly possible if people start panic buying gasoline they don’t need, there’s no reason to expect any widespread impact from the demand spike.

Today’s interesting read: Why AI requires a staggering amount of electricity and may create supply competition for EVs that will end up benefitting fossil fuels.

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