Energy Markets Dig In Heels After Brutal May

Market TalkMonday, Jun 3 2019
Energy Markets Survive Heavy Wave Of Selling

Energy markets are attempting to dig in their heels after a brutal May that knocked 12-16% off of prices. Overnight it appeared that the May sell-off would carry over through June as oil futures were down $1.5 and refined products were down another 3+ cents, but they managed to find a bottom around 3am and have been rising steadily since. The rebound coincided with comments from the Saudi energy minister pledging to draw down global inventories from elevated levels.

With most of the year’s gains wiped out in the past 2 weeks, there is little doubt that the 2019 bull market for energy prices has come to an end. The big question now is whether a new bear market is just beginning, or if we’ll enter another extended period of sideways trading. The first test in determining that looks to be chart support near the overnight lows at $60 for Brent & $52 for WTI, while RBOB faces a good test at its March lows of $1.71, and ULSD looks like it has room to fall all the way to its January lows of $1.64.

The 2019 Atlantic Hurricane season officially started on Saturday, and already there’s a storm system in the Gulf of Mexico that has a chance at becoming a named storm heading towards the Texas coast this week. Currently the National Hurricane Center is giving this storm a 60% chance of development (it will be named Barry if it reaches storm status) and while it may not have enough time over the water to develop into anything major, there’s a decent chance this storm will bring more flooding rains to a swath of TX, AR and LA that are already fighting high water levels.

The latest COT data (collected as of Tuesday May 28) shows that the liquidation in the managed money category picked up in earnest, with WTI, Brent and RBOB all seeing their largest weekly reductions in net-length of the year, while ULSD contracts fell back into a net-short position. Based on the price drops we saw in the back half of last week, it seems likely we could see an even larger reduction in speculative bets on higher prices in this week’s COT report.

Baker Hughes reported an increase of 3 oil rigs drilling in the US last week, with the total count regaining the 800 rig mark after dipping below that level last week for the first time since March 2018.

CLICK HERE for a PDF of today's charts

Energy Markets Dig In Heels After Brutal May gallery 0

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.