Reports Suggest Stimulus Deal Is Within Reach

Market TalkWednesday, Dec 16 2020
Market Talk Updates - Social Header

Oil prices managed to briefly trade up to fresh nine-month highs overnight, but have since pulled back and are moving sideways in early morning trading. Optimism for faster vaccine rollouts and more stimulus continue to be the themes getting credit for the rally in energy and equity markets, while weak supply/demand fundamentals and the threat of more lockdowns seem to be providing a dose of caution keeping the upward momentum in check.

The API reported more inventory builds last week. The largest was in distillates, which saw an increase of 4.7 million barrels, while crude oil stocks built by 1.9 million, and gasoline stocks increased by 828,000. The DOE’s report is due out at 9:30 central, and after last week’s huge 15 million barrel increase in crude oil inventories (the second largest increase in 20 years) it seems likely we may see a large headline draw as the import/export flow rebalances, and importers begin their year-end storage-at-sea to avoid taxes.

The FED’s open market committee wraps up its last meeting of 2020 today. The CME’s FEDWatch tool shows that the market is pricing in a 0% probability of an interest rate increase at this meeting. Not only do traders not expect rates to go up now, they are giving a 0% probability of a rate hike all the way through June as it’s expected the FED will do everything it can to keep the economy rolling. Speaking of which, while rate changes aren’t expected, the FOMC statement will be parsed for any clue on potential new monetary policy tools that could be used to help bridge the economy until the vaccine spreads faster than COVID itself, but with Congress gridlocked, we may see the fed put pressure on legislators by suggesting fiscal stimulus is what’s needed near term.

Speaking of fiscal stimulus, reports suggest a deal is within reach, which of course we’ve heard several times over the past month. One thing to watch closely is the numerous taxes that may be tied to the package, such as renewable energy credits, and the federal oil spill fee which is set to expire 12/31.

Speaking of the Federal Oil spill fee. It looks like we could see that tax brought before the supreme court in the coming year as a federal court has ruled that oil exporters should not be charged that tax, and the IRS appears to be ready to fight back against any refund requests.

If you need a reminder of the giant scale of a modern refinery, take a look at the article and photos of the hydrotreater being delivered to the P66 refinery outside of St. Louis this week. That plant is scheduled to undergo a major turnaround in the next few months, which apparently includes installation of this new unit.

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

TACenergy MarketTalk 121620

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.