Refined Products Are Seeing A Modest Pullback This Morning After A Furious 2-Day Rally To Start The Week

Refined products are seeing a modest pullback this morning after a furious 2-day rally to start the week. The moves in futures have mirrored the moves in stock markets which are also seeing some modest selling after one of the largest 2-day rallies on record.   

The two most powerful cartels influencing energy markets are OPEC and the US federal reserve, and expectations for both seem to be having a big influence on the price action this week even though neither one has yet made any official announcements. 

OPEC and friends are holding their first in person meeting in 2 years today, and there have been widespread reports that the cartel is planning a large production cut, despite pressure by the US to keep production high. The reality that OPEC is undershooting its production target by more than 1.3 million barrels/day suggests that an announced cut less than that amount may mean actual production will increase.

Want some evidence that we’re back in a “bad news is good news” market?  Yesterday the apparent catalyst for the biggest rally in stock markets in 2 years was a large and wide-spread drop in job openings in the US, which apparently had many thinking the FED pivot from its explicitly hawkish monetary policy sooner than previously expected. If that logic sounds shaky to you, you’re certainly not alone, and at some point the demand fears may come creeping back as traders remember that fewer jobs equates to fewer vehicles on the road and less real money to buy things.

While gasoline basis values in several markets were continuing their return to reality, diesel differentials saw more strength, leading to a rare occurrence where every major spot market in the US was trading at a premium to ULSD futures. 

Strong cash markets around the country seemed to be foreshadowing tighter inventories, and that’s exactly what the API showed Tuesday afternoon with gasoline stocks declining by 3.5 million barrels and diesel dropping by 4 million barrels. The report also estimated that crude oil inventories dropped by 1.8 million barrels despite the ongoing release of oil from the SPR.  

The DOE’s weekly report is due out at 9:30 central. The strength we’ve seen in basis, calendar and crack spreads in the past two weeks suggests that refineries are struggling to increase production, making refinery output an important figure to watch today.

Today’s interesting read: How a new deal between Israel and Lebanon could be a game changer for European Natural gas supplies…eventually. 

Click here to download a PDF of today's TACenergy Market Talk.