Taking A Trip To The Edge Of A Technical Cliff

Market TalkFriday, Jul 31 2020
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Energy futures took a trip to the edge of a technical cliff Thursday morning, but managed to pull back and return to safer territory, keeping the sideways trading pattern intact. All of that excitement happened in just over an hour of trading as product prices started plunging just before 9 a.m. Central Time, and were trading some eight cents lower by 9:20 – setting new lows for the month in the process - only to take back most of those losses by 10 a.m.  

The move coincided with a similar short-lived wave of selling in equity markets that suggests fear control for a while following some shocking headline drops in GDP & Q2 earnings releases. As those numbers were digested, and it became more clear that the numbers weren’t as bad as many were predicting, prices quickly recovered.  If prices can hold on near current levels today, July should be seen as a modest victory for energy bulls as crude & products all managed gains despite the setbacks in reopening plans as COVID cases surged. 

Today is expiration day for August ULSD and RBOB contracts, so watch the September (HOU/RBU) contracts to see where rack prices are heading tonight. September is the last month of summer-spec RBOB, which typically means increased volatility in spreads as inventory holders try to minimize their annual write-down of more expensive grades. Given the depressed demand environment and near-record inventory levels, this annual transition could be even more interesting than normal this year.

While refined product prices have been stagnant for most of July, ethanol values have been on a roller-coaster ride, which is pointing lower this week. After reaching multi-year highs early in the month, values are now hitting two month lows as tight inventories in regional hubs appear to be healing. 

No surprise here, Isaias was upgraded to hurricane status even though early models suggested it would not reach that strength. The good news is the storm’s path continues shifting east, which should limit the impact to Florida and the SE coast as long as it doesn’t shift back in the next couple of days. There are two new systems being monitored right behind this storm, as the record-setting pace of Atlantic activity shows no signs of slowing.

This morning, ExxonMobil reported a $1.1 billion loss for the quarter, even after adding $1.9 billion in inventory gains due to rising prices during the quarter.  It’s worth noting that Exxon released the report on its website this morning as the SEC’s filing system appears to be having technical difficulties on one of the busiest days for quarterly earnings reports. 

Valero had a similar report yesterday, with a large inventory write-up offsetting operational losses. Valero’s refineries ran only 2.3 million barrels/day in Q2 this year, vs. 2.9 million last year, and only its mid-con plants had positive earnings of its four refinery regions.

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

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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.

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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.