Chaotic Trading Grips Pockets Of U.S. Equity Markets
Gasoline futures just broke above $1.60 for the first time since you first heard about COVID-19, after Reddit users decided to band together and punish those shorting the RBOB market. That’s not really why it happened. It just seemed fitting giving the headlines of the day. In reality, the chaotic trading that’s gripped pockets of U.S. equity markets this week hasn’t seemed to spill over into energy markets yet, which have been relatively quiet over the past few weeks during the steady climb higher.
After a slow overnight session there has been a bit of excitement just before 8 a.m. central, as refined products have rallied 2-3 cents off of small overnight losses, pushing which seems to be following a bounce in equities after the Q4 GPD estimate and initial jobless claims were released. If you’re wondering why equity and commodity markets might rally after a weaker than expected read on the economy, remember we’re back in the days of bad news can be good news as it will encourage more fiscal and monetary stimulus that props up prices.
RIN values continue to lend support to gasoline and diesel prices, as their steady march higher continued Wednesday. No word yet on if any hedge funds had been shorting RINs before this move, but as long as that rally continues it will put more pressure on refiners that don’t have their own blending capabilities. That seems to be a contributing factor for refined products setting new 11 month highs this morning while crude oil prices are still lingering just below technical resistance.
The DOE’s weekly status report showed the largest draw down in crude oil inventories in six months, which helped the entire complex wipe out the modest losses it had seen earlier Wednesday morning. The bounce was not able to sustain itself however as it became clear for those that could read beyond the headline numbers, that a one million barrel/day drop in imports, and a one million barrel/day increase in exports were the drivers of that big decline in inventories, not a surge in refinery runs and overall consumption. That suggests the drop is a short lived event and we should see a large bounce back in the next week or two as those trade flows stabilize.
Gasoline demand dipped and remains well below normal seasonal levels, roughly 1.1 million barrels/day (11%) below the prior five year average. Diesel demand meanwhile increased, and is holding near the five year average seasonal range, and impressive feat given the known reductions in diesel-consuming vehicles involved in mass transit. Refinery runs dipped slightly on the week, and are about 1.2 million barrels/day below where we’d expect them to be in late January most years.
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.