Ceiling On Energy Prices Remains Intact

Market TalkThursday, Nov 12 2020
Market Talk Updates - Social Header

The ceiling on energy prices is intact for now and futures are slipping after failing to break through to the upside on Wednesday. A pair of negative monthly reports from OPEC and the IEA are getting credit for the pullback, while technicians will tell you this type of selling is normal when chart resistance repels a rally. The drop in prices after a dramatic November rally has been minor (and as this is being written WTI has moved back into positive territory) suggesting we are likely to see another test of that price ceiling again in the near future.

OPEC’s monthly report reduced its demand outlook as consumption in the America’s was below expectations and new COVID-containment measures in Europe are reducing transportation. In addition to the worsening demand outlook, the OPEC report showed the cartel’s output increased in October as Libyan production (which is exempt from the output cut agreement) started to come back online. What could be worse is that Libyan output increased to 454,000 barrels/day in October, and is expected to reach one million barrels/day in November, putting more pressure on the market.

There has been concern that the regime change in the U.S. may mean more Iranian oil comes back to the world market just in time for no one to need it, further adding to the bleak fundamental outlook. Not so fast, according to a new IAEA report, Iran’s enriched uranium stockpile is 12 times the agreed upon amount, making the removal of sanctions much more complicated, and making it less likely that the world will smile upon a new deal this year.

The IEA’s monthly oil report shows a similar pattern as OPEC with demand expectations slipping while supply increases. The IEA’s report also threw some cold water on the vaccine optimism that swept global markets earlier in the week suggesting there will not be a significant impact in the first half of 2021. The count of global refinery permanent shutdowns stands at 1.7 million barrels/day, but “Significant structural overcapacity” remains with approximately 20 million barrels/day of temporarily idled distillation capacity worldwide, suggesting more closures are coming. 

Right on cue, Scotland’s lone refinery announced that two units idled due to the drop in demand this year will be shuttered permanently

Eta made a second landfall in Florida north of Tampa this morning, as a tropical storm with sustained winds around 50 mph and is moving across the state, heading for Jacksonville this afternoon before reemerging in the Atlantic. The storm’s path and relative lack of strength means it should not disrupt port traffic for long. The tropical wave churning in the Caribbean now has 90% odds of being named, and we should know early next week if it will be yet another Gulf Coast threat.

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

TACenergy MarketTalk 111220

News & Views

View All
Pivotal Week For Price Action
Market TalkThursday, Mar 28 2024

Energy Markets Are Ticking Modestly Higher Heading Into The Easter Weekend With Crude Oil Prices Leading The Way Up About $1.25/Barrel Early Thursday Morning

Energy markets are ticking modestly higher heading into the Easter Weekend with crude oil prices leading the way up about $1.25/barrel early Thursday morning, while gasoline prices are up around 2.5 cents and ULSD futures are about a penny.

Today is the last trading day for April HO and RBOB futures, an unusually early expiration due to the month ending on a holiday weekend. None of the pricing agencies will be active tomorrow since the NYMEX and ICE contracts are completely shut, so most rack prices published tonight will carry through Monday.

Gasoline inventories broke from tradition and snapped a 7 week decline as Gulf Coast supplies increased, more than offsetting the declines in PADDs 1, 2 and 5. With gulf coast refiners returning from maintenance and cranking out summer grade gasoline, the race is now officially on to move their excess through the rest of the country before the terminal and retail deadlines in the next two months. While PADD 3 run rates recover, PADD 2 is expected to see rates decline in the coming weeks with 2 Chicago-area refineries scheduled for planned maintenance, just a couple of weeks after BP returned from 7 weeks of unplanned repairs.

Although terminal supplies appear to be ample around the Baltimore area, we have seen linespace values for shipping gasoline on Colonial tick higher in the wake of the tragic bridge collapse as some traders seem to be making a small bet that the lack of supplemental barge resupply may keep inventories tight until the barge traffic can move once again. The only notable threat to refined product supplies is from ethanol barge traffic which will need to be replaced by truck and rail options, but so far that doesn’t seem to be impacting availability at the rack. Colonial did announce that they would delay the closure of its underutilized Baltimore north line segment that was scheduled for April 1 to May 1 out of an “abundance of caution”.

Ethanol inventories reached a 1-year high last week as output continues to hold above the seasonal range as ethanol distillers seem to be betting that expanded use of E15 blends will be enough to offset sluggish gasoline demand. A Bloomberg article this morning also highlights why soybeans are beginning to displace corn in the subsidized food to fuel race.

Flint Hills reported a Tuesday fire at its Corpus Christi West facility Wednesday, although it’s unclear if that event will have a material impact on output after an FCC unit was “stabilized” during the fire. While that facility isn’t connected to Colonial, and thus doesn’t tend to have an impact on USGC spot pricing, it is a key supplier to the San Antonio, Austin and DFW markets, so any downtime may be felt at those racks.

Meanwhile, P66 reported ongoing flaring at its Borger TX refinery due to an unknown cause. That facility narrowly avoided the worst wildfires in state history a few weeks ago but is one of the frequent fliers on the TCEQ program with upsets fairly common in recent years.

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
Pivotal Week For Price Action
Market TalkWednesday, Mar 27 2024

Most Energy Contracts Are Ticking Lower For A 2nd Day After A Trickle Of Selling Picked Up Steam Tuesday

Most energy contracts are ticking lower for a 2nd day after a trickle of selling picked up steam Tuesday. ULSD futures are down a dime from Monday’s highs and RBOB futures are down 7 cents.

Diesel prices continue to look like the weak link in the energy chain, with futures coming within 1 point of their March lows overnight, setting up a test of the December lows around $2.48 if that resistance breaks down. Despite yesterday’s slide, RBOB futures still look bullish on the weekly charts, with a run towards the $3 mark still looking like a strong possibility in the next month or so.

The API reported crude stocks increased by more than 9 million barrels last week, while distillates were up 531,000 and gasoline stocks continued their seasonal decline falling by 4.4 million barrels. The DOE’s weekly report is due out at its normal time this morning.

RIN values have recovered to their highest levels in 2 months around $.59/RIN for D4 and D6 RINs, even though the recovery rally in corn and soybean prices that had helped lift prices off of the 4 year lows set in February has stalled out. Expectations for more biofuel production to be shut in due to weak economics with lower subsidy values seems to be encouraging the tick higher in recent weeks, although prices are still about $1/RIN lower than this time last year.

Reminder that Friday is one of only 3 annual holidays in which the Nymex is completely shut, so no prices will be published, but it’s not a federal holiday in the US so banks will be open.

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