We’re Seeing Another Mixed Bag For Energy Markets This Morning After A Wild Tuesday Session

Market TalkWednesday, Oct 12 2022
Pivotal Week For Price Action

We’re seeing another mixed bag for energy markets this morning after a wild Tuesday session that saw a stunning recovery in refined product prices. Strong gains overnight have been largely wiped out after the September PPI report showed that inflation is not going away, which moves the hopes of a FED pivot further into the future. RBOB prices have pulled back a nickel from their overnight highs and WTI is down nearly $2 since the report. ULSD meanwhile continues to find its own path, up nearly 7 cents despite the selling in other contracts, as the realities of an extremely tight diesel market continue to ripple across the globe.

The November ULSD contract has decoupled from the rest of the complex, staging an impressive 20+ cent rally Tuesday to settle higher even as most other ULSD contracts finished with heavy losses on the day. The spread from November to December futures has soared to nearly 35 cents this week, which would set records outside of the chaotic trading we saw in March in April. The big moves in the calendar spreads is creating more chaos in basis markets around the country as cash traders try to adjust to the big swings in futures spreads. Most notable today is that NYH ULSD is now trading 40 cents over the November futures, which puts the backwardation roughly 75 cents into December, or more than 1 cent per day. 

OPEC’s oil production ticked slightly higher in September, according to their monthly oil market report released this morning. The cartel’s total output was up 146mb/day for the month, with increases from Saudi Arabia, UAE and Nigeria offsetting declines in Iraq, Iran and Venezuela. It’s worth noting that the September output is still more than 1 million barrels/day below the August target that was used as the bar for the recently announced “production cuts”. The report lowered global demand estimates for 2022 due to ongoing lockdowns in China and economic challenges in Europe. The report also noted that China’s demand loss is allowing their refiners – which are some of the only plants in the world with spare capacity this year – to ramp up exports of refined products.  That change in product flow is one of several factors that have caused tanker rates in parts of the world to double compared to last year, which is also highlighted in this report. 

A US judge approved a long awaited plan to auction off shares of Citgo to settle several long-delayed judgements for companies that had their assets seized by Venezuela’s government. It’s worth noting that the auction wouldn’t take place until late 2023 at the earliest, and would only sell enough shares to pay off the outstanding judgements, not the entire company, which could allow the refiner to continue operating as they’ve been doing, rather than breaking it up into pieces as had been discussed for years. Meanwhile, the US continues to try and negotiate with Venezuela to find a way to bring some of the 2 million barrels/day of oil production back to the world market that’s been missing for the past 7 years as the beleaguered nation spiraled into social chaos.

Tropical Storm Karl formed in the Gulf of Mexico Tuesday, which would ordinarily be a reason for fuel markets to get nervous, particularly with the supply network already stretched very thin.  The good news with this storm is it is forecast to reverse course and head south into Mexico, so there is no threat to the oil production and refining assets on the US coast.

The EIA’s Short Term Energy outlook will be released later today, while the API and DOE/EIA weekly inventory reports are both delayed due to Monday’s quasi-holiday so the API will be out later this afternoon and the DOE report tomorrow.

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Market Talk Update 10.12.22

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Market TalkFriday, Jul 19 2024

Summertime-Friday-Apathy Trade Influencing Energy Markets

Energy markets are treading water to start the day as the Summertime-Friday-Apathy trade seems to be influencing markets around the world in the early going. RBOB futures are trying for a 3rd straight day of gains to wipe out the losses we saw to start the week, while ULSD futures continue to look like the weak link, trading lower for a 2nd day and down nearly 3 cents for the week.

Bad to worse: Exxon’s Joliet refinery remains offline with reports that repairs may take through the end of the month. On top of that long delay in restoring power to the facility, ENT reported this morning that the facility has leaked hydrogen fluoride acid gas, which is a dangerous and controversial chemical used in alkylation units. Chicago basis values continue to rally because of the extended downtime, with RBOB differentials approaching a 50-cent premium to futures, which sets wholesale prices just below the $3 mark, while ULSD has gone from the weakest in the country a month ago to the strongest today. In a sign of how soft the diesel market is over most of the US, however, the premium commanded in a distressed market is still only 2 cents above prompt futures.

The 135mb Calcasieu Refinery near Lake Charles LA has been taken offline this morning after a nearby power substation went out, and early reports suggest repairs will take about a week. There is no word yet if that power substation issue has any impacts on the nearby Citgo Lake Charles or P66 Westlake refineries.

Two tanker ships collided and caught fire off the coast of Singapore this morning. One ship was a VLCC which is the largest tanker in the world capable of carrying around 2 million barrels. The other was a smaller ship carrying “only” 300,000 barrels (roughly 12 million gallons) of naphtha. The area is known for vessels in the “dark fleet” swapping products offshore to avoid sanctions, so a collision isn’t too surprising as the vessels regularly come alongside one another, and this shouldn’t disrupt other ships from transiting the area.

That’s (not) a surprise: European auditors have determined the bloc’s green hydrogen goals are unattainable despite billions of dollars of investment, and are based on “political will” rather than analysis. Also (not) surprising, the ambitious plans to build a “next-gen” hydrogen-powered refinery near Tulsa have been delayed.

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Market TalkThursday, Jul 18 2024

Refined Products Stanch Bleeding Despite Inventory Builds And Demand Slump

Refined products are trading slightly lower to start Thursday after they stopped the bleeding in Wednesday’s session, bouncing more than 2 cents on the day for both RBOB and ULSD, despite healthy inventory builds reported by the DOE along with a large slump in gasoline demand.

Refinery runs are still above average across the board but were pulled in PADD 3 due to the short-term impacts of Beryl. The Gulf Coast region is still outpacing the previous two years and sitting at the top end of its 5-year range as refiners in the region play an interesting game of chicken with margins, betting that someone else’s facility will end up being forced to cut rates before theirs.

Speaking of which, Exxon Joliet was reportedly still offline for a 3rd straight day following weekend thunderstorms that disrupted power to the area. Chicago RBOB basis jumped by another dime during Wednesday’s session as a result of that downtime. Still, that move is fairly pedestrian (so far) in comparison to some of the wild swings we’ve come to expect from the Windy City. IIR via Reuters reports that the facility will be offline for a week.

LA CARBOB differentials are moving in the opposite direction meanwhile as some unlucky seller(s) appear to be stuck long and wrong as gasoline stocks in PADD 5 reach their highest level since February, and held above the 5-year seasonal range for a 4th consecutive week. The 30-cent discount to August RBOB marks the biggest discount to futures since 2022.

The EIA Wednesday also highlighted its forecast for rapid growth in “Other” biofuels production like SAF and Renewable Naptha and Propane, as those producers capable of making SAF instead of RD can add an additional $.75/gallon of federal credits when the Clean Fuels Producer’s Credit takes hold next year. The agency doesn’t break out the products between the various “Other” renewable fuels, but the total projected output of 50 mb/day would amount to roughly 2% of total Jet Fuel production if it was all turned to SAF, which of course it won’t as the other products come along for the ride similar to traditional refining processes.

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Pivotal Week For Price Action
Market TalkWednesday, Jul 17 2024

Week 28 - US DOE Inventory Recap