Many In The Market Caught Off-Guard

Market TalkFriday, Mar 5 2021
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Oil prices have spiked $5 a barrel, and refined products are up 12 cents/gallon since early Thursday morning after OPEC & friends announced they would not change their output cut agreement, which caught many in the market off-guard. The rally has propelled each of the big 4 petroleum futures contracts to their highest levels in more than a year, just a couple of days after it looked like the four month old trend might be breaking down.

The big rally in energy contracts comes in spite of a large selloff taking place in equity markets, which continue to act spooked by interest rates higher than 1%. You can make a strong argument that the two agencies most capable of moving energy prices with their policy are OPEC and the U.S. Federal reserve. Yesterday, we saw both in action with OPEC surprising the market to the upside, while the FED Chair apparently didn’t do enough to calm the stock markets. Given the two asset classes have had a strong positive correlation for most of the past year, this recent divergence could end up creating more volatility for energy contracts in the weeks to come, while a strong rally in the U.S. Dollar could finally pop the energy balloon.

Looking past the headlines of the OPEC announcement, there is some reason to pause given that the Saudi’s are still not convinced demand globally is capable of handling normal production levels. Then again, there is certainly a political angle to everything the cartel does, and it’s also possible that the U.S. reaction (or what critics call a lack of reaction) to the Saudi leadership’s role in the killing of Jamal Khashoggi could have played into this decision as well. A Bloomberg note this morning suggests that the move by the Saudi’s is a bet that U.S. oil producers will behave differently this time, even though they’ve behaved the same way for the past 150 years which has helped create the epic boom and bust cycles this market is famous for.  

The refinery recovery efforts continue to progress with additional units coming online daily, but hiccups are common, and re-supply is not coming fast enough for those still scrambling to find allocation across Texas and neighboring states. The impacts on rack prices are spread much further however with markets from Arizona to Virginia all feeling the trickle down impacts of the heart of refining country shutting down for two weeks. Group 3 diesel differentials continue to stand out, spiking to premiums north of 30 cents Thursday morning before trading lower to end the day. That market has 20 cents of backwardation between now and the end of March, as traders bet that resupply should largely be complete by April, even though supplies continue to tick lower in the region this week.

Chicken or the egg: RIN values continue to set new multi-year highs this week, which is either helping drive the rally in refined products, or being driven by that rally depending on who you ask. There’s little news over the RFS program or the various legal challenges to it, and grain prices have been fairly flat, so it seems this rally could simply be the market betting that this new administration is unlikely to do anything that would help lower this de-facto tax on refiners. 

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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
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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.