Energy Futures Struggle To Find Direction
Energy futures continue to struggle to find direction, starting the week with more apprehensive gains. After 2 months of consistent selling, the complex has been moving sideways for 3 weeks now.
Prices have been unable to hold below the $50 & $60 marks for WTI and Brent respectively, but also unable to sustain a rally, even following the latest output cut announcement from OPEC & Russia. Here’s why at least one person thinks that 2019 will continue with the unpredictable pattern.
Baker Hughes reported another decline in drilling rigs last week, with the total oil count dropping by 4, reaching its lowest level in 8 weeks. With WTI in Midland trading down to the low $40s last week, we could be in for more rig reductions in 2019 if prices don’t stabilize soon.
Money managers were a mixed bag last week, reducing their net length held in WTI and ULSD contracts, while showing increases in both RBOB and Brent. The net positions also changed for different reasons, as new length in Brent outpaced another increase in short positions (which are now approaching an 18 month high) while gasoline saw reduced length offset a reduction in short bets.
In 2018 we saw the speculative class of trader shift from record net-length as prices were rising early in the year, to below-average positions now. How they behave in 2019 may determine whether or not prices have put in a floor.
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Energy Futures Are Taking A Breather Tuesday Morning After A Strong 6-Day Rally That Pushed RBOB To A Fresh 6 Month High
ULSD Futures Are Trading Up For A 4th Straight Day, which Has Finally Broken The Downward Sloping Weekly Trend-Line Since Early February
Energy Futures Are Taking a Breather Friday Morning After Another Rally Thursday Pushed Gasoline Prices To A Fresh 6 Month High
Energy Markets Are Continuing To Rally After A Strong Push Higher Wednesday Sent Gasoline Futures To A 6-Month High
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View AllEnergy Futures Are Taking A Breather Tuesday Morning After A Strong 6-Day Rally That Pushed RBOB To A Fresh 6 Month High
Energy futures are taking a breather Tuesday morning after a strong 6-day rally that pushed RBOB to a fresh 6 month high while WTI and Brent prices both reached their highest levels since early November. For the first time in nearly a week, there were no new reports of attacks on Russian refineries Monday, after the rubber stamp elections ended Sunday.
Despite the Russian refinery attacks that have shut somewhere between 600,000 and 900,000 barrels/day of capacity being the apparent driver of the most recent product rally, crack spreads have only seen a modest rally, and remain well below the average levels we saw over the prior 2 years. The current range around $20-$25/barrel does set up refiners for a solid year of earnings however, with a much stronger forward outlook than just a few months ago.
The big question is whether or not Ukrainian forces can keep up the pace of refining and other energy infrastructure attacks? It’s not out of the realm of possibility that the crippling of complex refineries, who have repair complications due to sanctions, could be a key piece of the puzzle to bring peace to the region, and ultimately be bearish for energy prices, although that seems like an extreme long shot at this point.
Colonial line 1 values have had a strong rally in recent days, from a nickel discount to tariffs to a penny premium. It’s not unusual to see a slight premium at this time of year as shippers work to turn their tanks ahead of the RVP transition, but the sharp turnaround in values after they hovered near record lows just a week ago is noteworthy.
Exxon’s Baytown TX refinery reported a furnace fire that forced the shutdown of a Hydroformer unit Monday. The report said the flaring event lasted just under 4 hours, but it’s not clear if that unit remains offline. Meanwhile, Flint Hills reported its 3rd upset in a week at its Corpus Christi area refinery system, this one at its East facility, which impacted multiple units Monday.
The EIA this morning highlighted the flurry of M&A activity in the energy space last year, which reached its highest level in a decade, no doubt partially due to the realization that the only green Wall-street really cares about has nothing to do with the environment.
Click here to download a PDF of today's TACenergy Market Talk.
ULSD Futures Are Trading Up For A 4th Straight Day, which Has Finally Broken The Downward Sloping Weekly Trend-Line Since Early February
Refined products are rallying again to start the week after another round of attacks on Russian refineries over the weekend. For RBOB futures, this is the 6th straight day of increases, and prices have added 22 cents so far in that stretch and touched their highest level since September. ULSD futures are trading up for a 4th straight day, adding 15 cents in that time, which has finally broken the downward sloping weekly trend-line that had pushed prices lower since early February.
When a refinery in the US has a power outage or other unplanned disruption, it’s very challenging to get a clear read on the operational status of the facility (even sometimes for employees of that company) given the complex nature of operations and the economic stakes of that information. Once that reality sinks in, it’s easier to understand why getting a clear read on the actual impact of the drone attacks on at least 6 Russian refineries is about as easy as pronouncing their names.
The 6 refineries hit in the past week represent 1.3 million barrels of capacity, which makes up 24% of Russia’s total estimated refining capability, or just over 1% of global capacity. If even half of that output is shut for repairs as several reports suggest, it will have a meaningful impact on export flows, with countries like Brazil that had reduced US purchases in the past two years to take more disadvantaged Russian diesel the immediate losers, while USGC refiners should see a tick higher in their diesel export volumes that had stagnated of late (see charts below).
Staging for a spring rally: Confirming their bandwagon jumper status, money managers look like they’re joining in on the spring RBOB rally, now that prices have already reached 6-month highs. 1 out of 5 remaining of the large speculative short positions in RBOB contracts threw in the towel last week, while more than 4,000 new long positions were added.
HO futures saw the opposite response from money managers, who liquidated long positions and added new short bets in the US ULSD contract last week. The European diesel (gasoil) contracts, which has more than double the open interest of its US counterpart, saw a small increase in net length last week.
While open interest has recovered from the “too hot to handle” period of 2022, both the total OI for NYMEX and ICE petroleum contracts and the positions held by large speculative traders are still low compared to before the full-scale invasion of Ukraine broke out 2 years ago. Since the refinery attacks didn’t really get going until Tuesday of last week, which is also the day the CFTC collects its data for the Commitments of Traders report, these figures don’t yet include how hedge funds reacted to the attacks, but based on the price action there’s little doubt that the big speculators were piling in to refined product contracts, and now it’s just a question of how long they’ll stick around.
Baker Hughes reported an increase of 6 oil rigs and 1 natural gas rig in the US last week, pushing the total oil rig count to the highest level since September. Given the months of lead time generally needed to get new rigs active, it’s unlikely that the latest rally north of $80 was the catalyst for the rig count rising in 3 of the past 4 weeks, but it does come at an opportune time given that US production has dipped from its record high of 13.3 million barrels to 13.1 million, if you believe the EIA’s accounting problems have been fixed.
Click here to download a PDF of today's TACenergy Market Talk.
Energy Futures Are Taking a Breather Friday Morning After Another Rally Thursday Pushed Gasoline Prices To A Fresh 6 Month High
Energy futures are taking a breather Friday morning after another rally Thursday pushed gasoline prices to a fresh 6 month high, while crude oil prices reached their highest since early November. Diesel prices are trying to drag the complex lower this morning, and continue to look the weakest on the charts, but the momentum overall seems to be favoring higher prices as we move into spring.
It’s been a good week for many US refiners, with PBF, Marathon, P66 and Valero stock prices all reaching record highs, even though the current margin environment is a far cry from the levels they enjoyed for most of 2022 and 2023. It seems that a few macro factors are feeding the equity strength: The 3 Russian refineries hit by drones this week, and various shipping disruptions around the Red Sea, and now perhaps the Indian Ocean, are a reminder of the world’s limitations, even when crude oil is ample. There’s also the sense that reality is sinking in that the energy transition is going to take much longer than many hoped just a few short years ago.
Ethanol and RIN prices continue their recovery rallies this week, with D4 and D6 RINs reaching their highest in 2 months at 57 cents/RIN, but are still down about 20 cents so far in 2024, and roughly $1/RIN from this time last year. A government investigation into improper accounting at ADM is now reportedly focused on the company’s ethanol trading, although it seems like whatever happened was in prior years and probably not contributing to the price swings this week.
Click here to download a PDF of today's TACenergy Market Talk.