US Equity Markets Have Wiped Out Their Black Friday Losses And Energy Futures Are Close Behind
US equity markets have wiped out their black Friday losses, and energy futures are following close behind with both refined products up more than 25 cents off of last week’s lows. While the rally is no doubt impressive, we still need to see RBOB regain the $2.20 mark and ULSD get above $2.30 in order to break the downward sloping trend lines that started 7 weeks ago. If those levels hold as resistance, than this rally looks more like a short term correction rather than a reversal of the downward trend.
Omicron-who? A new Pfizer study suggests that 3 doses of their vaccine is effective against that strain of the virus, adding to the sense of relief that’s washed over markets this week. Whether or not that translates into relaxed travel restrictions may be the deciding factor in the sustainability of this rally.
Amidst the huge rally in stocks, energy futures and chaos in some regional supply markets and environmental credits, the normal fundamental data seems to be taking a backseat. The EIA’s short term energy outlook lowered the agencies demand forecast because of Omicron-induced travel restrictions, and set a price forecast for WTI in the low $60s for next year. That report was basically ignored during yesterday’s big rally, and may already be considered obsolete given the optimism for the vaccines’ effectiveness. The API’s weekly report was also largely shrugged off as inventory builds for gasoline and diesel did little to slow the upward momentum, while WTI prices stalled out overnight even though US crude inventories declined. The DOE’s weekly report is due out at 9:30 central, and we’ll just wait and see if anyone pays attention to it.
It was a wild day in RIN markets as the long overdue RFS proposals from the EPA finally were released, just a year (or two) later than the law says they should be. D6 RINs traded down 15 cents on the day to a 1 year low of $.75/RIN when the rumored numbers came out in the morning, then rallied 30 cents to end the day up 15 cents at $1.05 after the actual Renewable Volume Obligation (RVO) recommendation was released by the EPA. The actual proposed numbers came in very close to the leaked numbers from back in September, which retroactively changed the 2020 blending mandate lower and reduced the 2021 volumes as well.
Why the big rally then? Along with the proposed volumes, the EPA also proposed to deny more than 60 pending small refinery exemptions (SRE) from the RFS, which according to the table below suggests every single SRE submitted since 2019 is going to be denied, a stark contract to the previous 3 years when most were granted. So what? That means even though the RVO target has been lowered, the actual volumes needing to be blended may still go up. In addition, the EPA raised the 2022 blending obligation, and set the stage for further increases in 2023 and beyond.
It’s worth noting, particularly given the large amount of fake news surrounding this topic, that neither the RVO or SRE proposals are final yet, and there will no doubt be lawsuits challenging both decisions, meaning the industry will continue operating without knowing exactly what the law really is.
The Natural Gas war: After a phone call between the US & Russian Presidents Tuesday, US Officials signaled a plan to force a shutdown of the Nordstream 2 natural gas line that exports Russian natural gas to Europe if there’s an invasion of the Ukraine. There’s no doubt the Russians know how to play a game of chess, so it will be interesting – if not terrifying for those relying on that supply – to see their response. This event may end up being one for the history books, whether or not the US Excess natural gas supply can help secure Europe’s shortage, or will they continue to prove reliant on an unfriendly neighbor to the East. Hopefully that’s the only part of this story that ends up in the history books.
Click here to download a PDF of today's TACenergy Market Talk.
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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.