ULSD Prices Are Currently Trading Above Their Downward Sloping Trend-Line

Market TalkWednesday, Jan 10 2024
Pivotal Week For Price Action

Fuel prices are heading higher for a 2nd day, with both RBOB and ULSD futures pushing nickel gains in the early going despite more signs of swelling inventories.  

ULSD prices are currently trading above their downward sloping trend-line, and the charts suggest we’ll see a run north of $2.80 in the near future if these gains can hang on today.   RBOB prices remain less bullish technically, and face more seasonal headwinds than diesel, but still look like they have a good shot of making a run at the 200-day moving average just north of $2.20 in the next week. 

Houthi rebels launched their largest attacks yet in the Red Sea Tuesday night, which was successfully repelled by US and British naval forces and no damage was reported by ships moving through the region. The attack comes just hours before the UN takes a vote on a resolution to condemn the attacks, and seems to make it more likely that the Houthis are about to get a lesson in US special operations capabilities. 

The third major winter storm in a week is set to sweep across the country over the next few days, following a similar West to East path as the one we just saw. What may be more concerning for some is that some extremely cold air is coming in the wake of this storm, pushing large parts of the country below zero for 2 or more days to start next week, while north Texas is predicted to drop into single digits. Refinery row across the Gulf Coast is expected to see temperatures drop below freezing Monday and Tuesday, which certainly could create some operational upsets, but unlike Winter Storm Uri in 2021, temperatures will get above freezing during the day, and the cold snap is only set to last about 48 hours, so it seems unlikely we’ll see anything close to the chaos of a few years ago. ERCOT is already issuing warnings in preparation for this latest cold snap, but says the grid is prepared to handle the spike in demand. 

The API reported more large refined product builds last week with gasoline stocks up nearly 5 million barrels, while distillates increased by 6.9 million barrels. Obviously given the overnight rally in prices, the market seems to be shrugging off those builds, which may be because the API’s figures had to go higher to keep pace with the 10+ million barrel builds reported by the DOE last week, so the APIs figures weren’t unexpected.   The DOE’s weekly report is due out at its regular time this morning, the first time in 3 weeks it will be on schedule due to the holidays. Next week’s report will be delayed again for the MLK Jr. Day holiday, which will also shut spot markets (and many industry offices as a result) even though futures will still trade in an abbreviated session.

The Monday holiday will also coincide with what’s expected to be the worst of the cold weather, so we won’t get cues on the severity of the event from spot market trading.  Perhaps the most vulnerable part of the country to a cold snap is the Northeastern US due to a lack of natural gas transportation infrastructure forcing many to still rely on diesel fuel as a primary or backup heat source, while diesel stocks in the region remain very low by historical standards. The good news there is so far the forecast lows for the major metro areas from New York to Boston are only in the teens, and daytime highs will hover around freezing, so this is not (yet) looking anything like the major Polar Vortex event from a decade ago.

This week’s interesting read: Chevron’s response to California’s proposed rule that would penalize refiners for making too much money. For the counter-argument, read about California’s X1-2 bill here. Meanwhile, California officials announced this week that refiners, traders, brokers and anyone else participating in the states spot markets now need to report their trades twice, once when the deal is done and again once the final prices are set, since earlier mandates to report all trades couldn’t handle the realities of floating price mechanisms commonly used.

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Market Talk Update 01.10.2024

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Market TalkFriday, May 24 2024

Selling Continues In Energy Markets After Thursday's Reversal Rally Ran Out Of Steam In The Afternoon

The selling continues in energy markets after Thursday’s reversal rally ran out of steam in the afternoon, following the lead of U.S. equity markets which had a big sell-off on the day. Prices haven’t yet fallen below the multi-month lows we saw early last week, but we’re just a couple of cents away from those levels, and the potential technical trapdoor that could lead to sharply lower values over the next couple of weeks.

We did see a brief spike in gasoline futures after the settlement Thursday following reports that Colonial had shut down Line 4 due to an IT issue, but those gains were short-lived as the pipeline was restarted without issue a few hours later. Those who remember the chaos of May 2021 after Colonial was hacked are breathing a sigh of relief, particularly on one of the busiest demand days of the year, while others are no doubt disappointed we won’t get to see the rash of fake photos of people filling up plastic bags with gasoline.

OPEC & Friends (AKA the DoC) announced they’re moving June’s policy meeting to a virtual-only affair, which the market is taking as a signal of the status quo being held on output cuts.

Chicago being Chicago: Tuesday’s 60-cent basis spike was officially wiped out by Thursday afternoon, suggesting the short-lived rally was just short covering in an illiquid market rather than a meaningful supply disruption.

RIN values continued their rally this week, touching a 4-month high at 59 cents/RIN for both D4 and D6 values Thursday. If you believe in technical analysis on something like RINs, you can see a “W” pattern formed on the charts, suggesting a run to the 80-cent range is coming if prices can get above 60. If you are more of a fundamentalist, then you’ll probably think this rally is probably more short-term short-covering by producers of RD who have changed their schedule buying back their RIN hedges for volume they’re no longer planning to produce.

NOAA issued its most aggressive Hurricane forecast ever Thursday, joining numerous other groups that think a La Nina pattern and record warm waters will create more and bigger storms this year. With the activity level seeming to be a foregone conclusion at this point, now it’s all about where those storms hit to know if this busy season will be a huge factor in energy supplies like we saw in 2005, 2008, 2012 and 2017. With the Houston area already being bombarded by floods and deadly wind this year, the refinery row across the U.S. Gulf Coast seems even more vulnerable than normal to the effects of a storm.

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

Pivotal Week For Price Action
Market TalkThursday, May 23 2024

Gasoline Prices Have Finally Found A Bid, Trading Up 3 Cents On The Day

Gasoline prices have finally found a bid, trading up 3 cents on the day after coming within a penny and a quarter of the multi-month lows set last week overnight. ULSD prices are also up a couple of cents in the early going after wiping out the gains they made last week. Both contracts are once again threatening a technical breakdown that could push prices another 20-30 cents lower if the current bounce isn’t sustained.

The EIA’s estimate for gasoline demand surged to a 7-month high last week, capping off a 4th straight week of gains that puts total consumption near the top end of the seasonal range after a very sluggish start to the year. AAA estimates that travel this Memorial Day weekend will approach a 20 year high with nearly 44 million people hitting the roads.

The EIA also published a note this morning showing average US gasoline prices are up 1% from last year, accompanied by a chart showing that average prices are down 7 cents/gallon from this time last year. The spread between retail gasoline prices on the West Coast vs the rest of the country continues to grow and is shown to be over $1.20/gallon thanks to Oregon and Washington’s Californication of their energy policies in recent years.

The EIA still seems to be struggling to figure out its accounting methods for crude oil inventories, with the adjustment factor that’s been creating all sorts of confusion the past couple of years flipping from a negative 200,000 barrels/day last week, to a positive 1.4 million barrels/day this week. You could give the EIA compilation crew a break and say that this reflects just how large and complex the US crude oil supply network is, or you could ask how did they suddenly “find” 10-million barrels of oil that they didn’t see last week.

Refiners are cranking up run rates, exceeding the levels we’ve seen this time of year in either of the past 2 years. Those higher run rates are added to the glut of diesel products that’s hanging over the majority of the country, and pushing rack spreads to levels we haven’t seen since the COVID lockdown in several markets.

The export market for US crude and refined products remains very busy with nearly 10 million barrels shipped out of the country every day. Refinery throughput was 16.2 million barrels/day last week, and more than 6 million barrels/day was exported even though gasoline and diesel exports have stagnated this year. The anticipated tick higher in US diesel exports following the rash of Russian refinery attacks has not materialized, which is no doubt contributing to the negative sentiment for diesel prices over the past month. The busy and growing export market for crude and other products also creates an interesting dynamic as we prepare for a busy hurricane season to kick off in a week as any disruption to infrastructure along the Gulf Coast could limit product going out of the country almost as much as it disrupts products flowing inland.

Basis values for RBOB in Chicago dropped 30 cents Wednesday after Tuesday’s 60 cent spike. It’s still unclear what if any impacts the confirmed fire at Exxon’s Joliet refinery, or the rumored upsets at BP’s Whiting facility have had on actual supply in the region, but the quick pullback suggests this is a flash in the pan rather than the start of a prolonged supply shortage.

Exxon reported a leak at its Beaumont TX Chemical plant, but it appears that upset isn’t impacting the operations at its adjacent refinery.

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 22 2024

Week 20 - US DOE Inventory Recap