Energy Markets Rally As Saudi-Russia Production Cuts Extend

Oil and diesel futures are poised for a 6th straight week of gains after some whipsaw price action over the past couple of days.

ULSD futures saw a 12-cent intraday reversal lower Wednesday - that ruined a run at 12 consecutive increases – followed by a 13 cent bounce off of their lows Thursday to set a new 6 month high. The double reversal puts the bulls back in the driver seat with weekly charts suggesting a run towards $3.50 could be coming soon. 

Saudi Arabia and Russia both announced they would extend their voluntary production cuts yesterday, which helped give WTI and Brent a boost, even though the Russians reduced the amount they are keeping off the market. Ukraine seems to want to help the Russians involuntarily reduce their export volume taking aim at a major Black Sea port overnight. 

After being the weak link in the energy chain for much of the week, RBOB futures have decided to join in on the bull run fun and are leading the complex higher this morning with nickel gains for the prompt September contract.

Back to school squeeze? Gasoline spreads are getting interesting once again as we wind down the last weeks of summer the Sep/Oct (U/V) RBOB futures contracts (AKA the “sunburn spread”) have widened out to an almost 25 cent premium for the remaining summer-grade RVP grade, which is roughly double what we’ve come to expect with that annual transition. West Coast spot are seeing even more dramatic moves with San Francisco CARBOB trading up close to a 50-cent premium to summer-grade futures and LA approaching a 40-cent premium, despite the new laws from the governor of California that now require refiners to report their trading activity on a daily basis that were put into place following last year’s RVP transition-related price spike.

Time for reform? A pair of reformer-unit upsets at Gulf Coast refineries seems to be a contributor to the relative strength in gasoline prices so far today. Exxon’s Baytown facility reported a hydro-former unit had a leak yesterday, but noted it had a “minimal impact to production” in its regulatory filing. Total was forced to shut a unit at its Port Arthur refinery after a pump leak that lasted 11 hours, which will most certainly have more than a minimal impact to production.

PBF joined the growing list of new Renewable Diesel producers, reporting during an earnings release Thursday that output at its St. Bernard (parish, not the dog) JV production facility co-located at its Chalmette LA refinery came online in July. The company’s operations followed the theme of most refiners in Q2, with margins notably lower from the record-setting quarter a year ago, but still above average despite lackluster demand as inventories remain relatively tight across the country.

Slowing down? The July payroll report estimated 187,000 jobs added last month, while the May and June estimates were revised lower by a combined 49,000 jobs. The headline unemployment rate ticked down a tenth to 3.5%, while the less-manipulated U-6 unemployment rate ticked down 2 tenths to 6.7%. The market reaction was muted to the report as it probably isn’t good or bad enough to change the FED’s plan of action on interest rates.

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