Weak Data From China Is Getting Blamed For The Soft Start In Both Energy And Equity Markets This Morning

Market TalkTuesday, Aug 15 2023
Pivotal Week For Price Action

Diesel prices are moving lower for a 4th straight day and are down 19 cents from Thursday’s high trade after chart support failed to hold on Monday. Gasoline and crude oil prices were following diesel’s lead lower this morning, with RBOB futures down nearly a dime since Friday before bouncing back to break-even levels around 7:30 central.

Weak data from China is getting blamed for the soft start in both energy and equity markets this morning. While sales, production and investment all moved higher on the year, the numbers were well below what many forecasters were expecting, and more troubling was their Bureau of Statistics stopped reporting unemployment figures for youth, which had recently soared to record highs. The weaker economic activity isn’t slowing down Chinese refineries however as the new capacity brought online in the past 2 years helped hold output near record levels in July and continue heavy export activity despite seasonally strong domestic demand.

The bounce in gasoline prices off of overnight lows followed US retail sales data for July that showed the strongest gain since January, even though that report seems to have done little to move equities off of their lows for the day. The correlation between daily moves in energy and equity markets had largely fallen apart over the past couple of weeks, which seems to be helping RBOB shrug off the drop in stocks so far.

The volatility index for WTI has dropped to its lowest level since 2019 as global markets seem to be finding some sense of temporary equilibrium after the chaos of the COVID years and shock of the Russian invasion changing the direction of the global energy trade. 

What a difference a week makes: Group 3 Unleaded basis values have dropped nearly 30 cents over the past week as concerns about a supply squeeze ahead of the fall RVP transition seem to be subsiding. Neighboring Chicago RBOB prices followed the Group’s strong rally over the past month, and now look like they could be set to collapse in sympathy as well.  West Coast basis levels remain elevated heading into the transition, with last year’s September spike north of $2/gallon premiums still fresh on many minds.

Add another competitor to the renewable feedstock wars: A recent test showed Hydrotreated Vegetable Oil (which is what the rest of the world calls Renewable Diesel) lowered emissions 83% when replacing traditional bunker fuels on ships. That should come as no surprise to anyone who has been watching the rapid growth in RD production the past few years, and the question for producers is simply which market will provide the most incentive (aka environmental credits) for their RD, SAF or marine HVO.

The NHC is still tracking 2 potential storm systems this morning. The good news is the first system that could form in the Caribbean, is only given 10% odds of developing, and the 2nd storm that has slightly higher odds (30%) looks like it’s moving far enough north that it should stay over open water if it does develop further.

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Market Talk Update 08.15.2023

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Pivotal Week For Price Action
Market TalkFriday, May 17 2024

The Recovery Rally In Energy Markets Continues For A 3rd Day

The recovery rally in energy markets continues for a 3rd day with refined product futures both up more than a dime off of the multi-month lows we saw Wednesday morning. The DJIA broke 40,000 for the first time ever Thursday, and while it pulled back yesterday, US equity futures are suggesting the market will open north of that mark this morning, adding to the sends of optimism in the market.

Despite the bounce in the back half of the week, the weekly charts for both RBOB and ULSD are still painting a bearish outlook with a lower high and lower low set this week unless the early rally this morning can pick up steam in the afternoon. It does seem like the cycle of liquidation from hedge funds has ended however, so it would appear to be less likely that we’ll see another test of technical support near term after this bounce.

Ukraine hit another Russian refinery with a drone strike overnight, sparking a fire at Rosneft’s 240mb/day Tuapse facility on the black sea. That plant was one of the first to be struck by Ukrainian drones back in January and had just completed repairs from that strike in April. The attack was just one part of the largest drone attack to date on Russian energy infrastructure overnight, with more than 100 drones targeting power plants, fuel terminals and two different ports on the Black Sea. I guess that means Ukraine continues to politely ignore the White House request to stop blowing up energy infrastructure in Russia.

Elsewhere in the world where lots of things are being blown up: Several reports of a drone attack in Israel’s largest refining complex (just under 200kbd) made the rounds Thursday, although it remains unclear how much of that is propaganda by the attackers and if any impact was made on production.

The LA market had 2 different refinery upsets Thursday. Marathon reported an upset at the Carson section of its Los Angeles refinery in the morning (the Carson facility was combined with the Wilmington refinery in 2019 and now reports as a single unit to the state, but separately to the AQMD) and Chevron noted a “planned” flaring event Thursday afternoon. Diesel basis values in the region jumped 6 cents during the day. Chicago diesel basis also staged a recovery rally after differentials dropped past a 30 cent discount to futures earlier in the week, pushing wholesale values briefly below $2.10/gallon.

So far there haven’t been any reports of refinery disruptions from the severe weather than swept across the Houston area Thursday. Valero did report a weather-related upset at its Mckee refinery in the TX panhandle, although it appears they avoided having to take any units offline due to that event.

The Panama Canal Authority announced it was increasing its daily ship transit level to 31 from 24 as water levels in the region have recovered following more than a year of restrictions. That’s still lower than the 39 ships/day rate at the peak in 2021, but far better than the low of 18 ships per day that choked transit last year.

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

Pivotal Week For Price Action
Market TalkThursday, May 16 2024

Energy Prices Found A Temporary Floor After Hitting New Multi-Month Lows Wednesday

Energy prices found a temporary floor after hitting new multi-month lows Wednesday morning as a rally to record highs in US equity markets and a modestly bullish DOE report both seemed to encourage buyers to step back into the ring.

RBOB and ULSD futures both bounced more than 6 cents off of their morning lows, following a CPI report that eased inflation fears and boosted hopes for the stock market’s obsession of the FED cutting interest rates. Even though the correlation between energy prices and equities and currencies has been weak lately, the spillover effect on the bidding was clear from the timing of the moves Wednesday.

The DOE’s weekly report seemed to add to the optimism seen in equity markets as healthy increases in the government’s demand estimates kept product inventories from building despite increased refinery runs.

PADD 3 diesel stocks dropped after large increases in each of the past 3 weeks pushed inventories from the low end of their seasonal range to average levels. PADD 2 inventories remain well above average which helps explain the slump in mid-continent basis values over the past week. Diesel demand showed a nice recovery on the week and would actually be above the 5 year average if the 5% or so of US consumption that’s transitioned to RD was included in these figures.

Gasoline inventories are following typical seasonal patterns except on the West Coast where a surge in imports helped inventories recover for a 3rd straight week following April’s big basis rally.

Refiners for the most part are also following the seasonal script, ramping up output as we approach the peak driving demand season which unofficially kicks off in 10 days. PADD 2 refiners didn’t seem to be learning any lessons from last year’s basis collapse and rapidly increased run rates last week, which is another contributor to the weakness in midwestern cash markets. One difference this year for PADD 2 refiners is the new Transmountain pipeline system has eroded some of their buying advantage for Canadian crude grades, although those spreads so far haven’t shrunk as much as some had feared.

Meanwhile, wildfires are threatening Canada’s largest oil sands hub Ft. McMurray Alberta, and more than 6,000 people have been forced to evacuate the area. So far no production disruptions have been reported, but you may recall that fires in this region shut in more than 1 million barrels/day of production in 2016, which helped oil prices recover from their slump below $30/barrel.

California’s Air Resources Board announced it was indefinitely delaying its latest California Carbon Allowance (CCA) auction – in the middle of the auction - due to technical difficulties, with no word yet from the agency when bidders’ security payments will be returned, which is pretty much a nice microcosm for the entire Cap & Trade program those credits enable.

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 15 2024

Week 19 - US DOE Inventory Recap