Quiet Start To End A Wild Week
It’s a quiet start to end a wild week for financial markets around the globe, with oil prices starting the day with modest gains, while refined products are essentially flat on the day after trading higher overnight.
The debates over the Saudi’s ability to restore its oil production, and what they – and the US – might do in retaliation seem to have reached a temporary stalemate causing the lack of prices movement this morning with no new headlines to push the action. Saudi officials continue to claim that their oil production will be fully back online by the end of September, although plenty of doubts from outsiders on their ability to do so.
Although refined product prices look to end the week some 12-15 cents higher, from a technical perspective, the failure this week for prices to break above their May high could be seen as a bearish signal on the long term charts. We’ll need to see prices settle lower to end September to even begin confirming that theory, but at this point, the technical outlook is starting to turn negative with bearish seasonal demand patterns likely to add to the negative sentiment soon.
While most eyes have been focused on the FOMC’s monetary policy, and how the NY FED is handling a bit of panic in the overnight funding market, the Dallas FED released its report on energy indicators this week, noting how employment in the industry continues to decline despite production and exports continuing to climb.
The Beaumont area experienced rainfall on par with Hurricane Harvey from Tropical Storm Imelda this week, and news that the weather was causing refinery issues helped futures to rally in Thursday’s session, although gulf coast basis values seemed to shrug off the news. In addition to the Exxon Beaumont facility, there were numerous other reports of issues at various chemical plants in the area. The good news was none of the other major petroleum refineries seem to have been affected. The bad news is – according to the Texas Commission on Environmental Quality - the Jed Clampett production facility operated by Oxy USA reported an emissions event that will last through this afternoon. There are no updates on how Ellie May is doing.
Forecasts for Hurricane Jerry continue to shift to the North and East, which is good news for the US Coast that’s now well out of the threat cone, but bad news for Bermuda which looks like it will take its 2nd direct hit in a week. Two other tropical systems in the Atlantic are still given low odds of developing by the NHC.
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Week 16 - US DOE Inventory Recap
Energy Markets Trading Quietly In The Red As Ethanol Prices Rally To Five-Month High
Energy markets are trading quietly in the red to start Wednesday’s session after a healthy bounce Tuesday afternoon suggested the Israel-Iran-linked liquidation had finally run its course.
There are reports of more Ukrainian strikes on Russian energy assets overnight, but the sources are sketchy so far, and the market doesn’t seem to be reacting as if this is legitimate news.
Ethanol prices have rallied to a 5-month high this week as corn and other grain prices have rallied after the latest crop progress update highlighted risks to farmers this year, lower grain export expectations from Ukraine, and the approval of E15 blends this summer despite the fact it pollutes more. The rally in grain and renewables prices has also helped RIN values find a bid after it looked like they were about to test their 4-year lows last week.
The API reported small changes in refined product inventories last week, with gasoline stocks down about 600,000, while distillates were up 724,000. Crude oil inventories increased by 3.2 million barrels according to the industry-group estimates. The DOE’s weekly report is due out at its normal time this morning.
Total reported another upset at its Port Arthur refinery that’s been a frequent flier on the TCEQ alerts since the January deep freeze knocked it offline and damaged multiple operating units. This latest upset seems minor as the un-named unit impacted was returned to normal operations in under an hour. Gulf Coast basis markets have shrugged off most reports of refinery upsets this year as the region remains well supplied, and it’s unlikely we’ll see any impact from this news.
California conversely reacted in a big way to reports of an upset at Chevron’s El Segundo refinery outside of LA, with CARBOB basis values jumping by more than a dime. Energy News Today continued to show its value by reporting the upset before the flaring notice was even reported to area regulators, proving once again it’s ahead of the curve on refinery-related events. Another industry news outlet meanwhile struggled just to remember where the country’s largest diesel seller is located.
Click here to download a PDF of today's TACenergy Market Talk
The Struggle For Renewable Producers Continues As A Rapid Influx Of Supply And Crashing Credit Prices Make Biodiesel
The sigh of relief selloff continues in energy markets Tuesday morning, with gasoline prices now down more than 20 cents in 7 sessions, while diesel prices have dropped 26 cents in the past 12. Crude oil prices are within a few pennies of reaching a 1 month low as a lack of headlines from the world’s hot spots allows some reflection into the state of the world’s spare capacity for both oil and refined products.
Gasoline prices are trading near a 6-week low this morning, but still need to fall about another nickel in order to break the weekly trendline that pushed prices steadily higher since December. If that trend breaks, it will be safer to say that we saw the end of the spring gasoline rally on April 12th for the 2nd year in a row. Last year RBOB futures peaked on April 12 at $2.8943 and bottomed out on May 4th at $2.2500. The high (at this point) for this year was set on April 12th at $2.8516, and the low overnight was $2.6454.
It’s not just energy commodities that are seeing an unwind of the “flight to safety” trade: Gold prices had their biggest selloff in 2 years Monday and continue to point lower today. Just how much money poured into commodities in the weeks leading up to the direct confrontation between Israel and Iran is unclear, but we have seen in year’s past that these unwind-events can create a snowball effect as traders can be forced to sell to cover their margin calls.
Supply > Demand: The EIA this morning highlighted the record setting demand for natural gas in the US last year, which was not nearly enough to offset the glut of supply that forced prices to a record low in February. A shortage of natural gas in Europe was a key driver of the chaotic markets that smashed just about every record in 2022, and an excess of natural gas supply in Europe and the US this year is acting as a buffer, particularly on diesel prices.
The struggle for renewable producers continues as a rapid influx of supply and crashing credit prices make Biodiesel, RD and SAF unprofitable for many. In addition to the plant closures announced in the past 6 months, Vertex Energy reported Monday it’s operating its Renewable Diesel facility in Mobile AL at just 50% of capacity in Q1. The truly scary part for many is that the $1/gallon Blender's tax credit ends this year and is being replaced by the “Clean” Fuel production credit that forces producers to prove their emissions reductions in order to qualify for an increased subsidy. It’s impossible to say at this point how much the net reduction will be for domestic producers, but importers will get nothing, and at current CI values, many biodiesel producers may see their “blend credit” cut by more than half.
Click here to download a PDF of today's TACenergy Market Talk.