World Anxiously Awaits U.S. Election Results

Market TalkWednesday, Nov 4 2020
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Energy prices are moving higher for a third straight day as the world anxiously awaits results of the U.S. elections.  

After moving higher in the evening, energy and equity futures both saw a slump overnight after it became clear that a clear winner in the U.S. Presidential race would not be named immediately, and the suggestion that the Supreme Court would need to get involved seemed to temporarily spook the markets. After roughly two hours of trading in the red, both asset classes were able to climb back higher in the early morning hours. We could see more similar swings throughout the day as the headlines of vote tallies continue to roll in.

While the momentum has clearly shifted near-term after prices survived a big selloff Sunday night, weekly and monthly charts continue to show a downward sloping trend, that favors lower prices this winter unless WTI can claw back above the $40 mark this week.

The API reported a large draw in oil inventories of eight million barrels last week, which helped oil and product prices keep their upward momentum Tuesday evening. Gasoline inventories built by 2.4 million barrels, while distillates had a small decline of 577,000 barrels. The DOE’s weekly report is due out at its normal time this morning.

Hurricane Eta is moving over Central America, and is now expected to hit Florida early next week. Forecasts suggest that it will be a tropical storm when it reaches the state, but based on what we’ve seen with storms over the Caribbean blowing up rapidly this year, don’t be surprised if that changes this weekend. The current path keeps the storm well to the south and east of oil platforms and refineries, so this should be a non-event for fuel supplies beyond some possible temporary closures at Florida ports.

The EIA this morning highlighted the shift in energy flows between the U.S. and Mexico over the past decade. Oil flows from Mexico have tumbled as Pemex struggles with corruption and ineptitude, while U.S. exports of refined products have soared while Mexican refineries run well below capacity. While these flows have become a more important outlet for U.S. refiners, new policies being discussed south of the border to reinvigorate Pemex have the potential to slow the flow of gasoline and diesel in the coming years.

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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