The Wild Ride Continues
The wild ride continues this morning after cooler heads prevailed in Thursday’s session, helping energy and equity markets pull back from the brink of another major collapse. At multiple points during the day we saw refined products down more than 7 cents, only to recover each time and are starting the day with a wave of buying that had most contracts up around 2% as they awaited the OPEC announcement. US Equities saw a similar pattern, albeit for apparently different reasons, as the DJIA recovered most of its early 700 point drop by day’s end.
Conflicting headlines from the OPEC & Friends meetings continue to roil the energy markets, while equities seem to be breathing a sigh of relief that the arrest of a Chinese executive for violating US sanctions (on Iran) doesn’t appear to be stopping the talks of a trade truce.
Here’s an example of how unreliable the news wires are on the OPEC story:
* 07-Dec-2018 08:01:54 AM - OPEC SOURCE SAYS IRAN HAS AGREED TO OPEC DEAL
* 07-Dec-2018 08:02:58 AM - SECOND OPEC SOURCE SAYS IRAN HAS AGREED IN PRINCIPLE
*07-Dec-2018 08:09:22 AM - IRAN DELEGATE: IRAN HAS NOT REACHED AN AGREEMENT WITH OPEC
*07-Dec-2018 09:39:51 AM OPEC MEETING ENDS W/ AGREEMENT ON 1.2M B/D OPEC+ CUT: DELEGATES
Following that last headline of a 1.2 million barrel/day production cut energy prices have popped another 2-3 percent with most contracts now up 4-5% on the day.
The November jobs report showed an increase of 155,000 in non-farm payrolls, while the headline unemployment rate held steady at 3.7%, while the U-6 (aka the “real” unemployment rate) ticked up to 7.6%. Stocks moved higher in the wake of this report as it seems soft enough to keep the FED re-thinking their strategy for rate increases in 2019.
Notes from the DOE Weekly Status Report:
The headline draw of more than 7 million barrels of crude oil inventory (the first weekly decline in 11 weeks) sure seems bullish at face value, but when you dig deeper and notice that the weekly drop in imports accounted for 6.6 million barrels and the increase in exports accounted for another 5.3 million barrels. Suddenly the drop looks transitory, and even bearish, since we would have had a 5 million barrel build if the import/export flow had held steady to a week ago.
Remember the campaign slogan “drill baby drill”? Turns out that worked out better than its supporters did during the election 10 years ago as the US just became a net exporter of petroleum products last week for the first time in at least 45 years. Total oil & product imports were 8.8 million barrels per day last week, while total exports reached a new record north of 9 million barrels per day, with crude oil exports setting an all-time high north of 3 million barrels/day.
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Gasoline Futures Are Leading The Way Lower This Morning
It was a volatile night for markets around the world as Israel reportedly launched a direct strike against Iran. Many global markets, from equities to currencies to commodities saw big swings as traders initially braced for the worst, then reversed course rapidly once Iran indicated that it was not planning to retaliate. Refined products spiked following the initial reports, with ULSD futures up 11 cents and RBOB up 7 at their highest, only to reverse to losses this morning. Equities saw similar moves in reverse overnight as a flight to safety trade soon gave way to a sigh of relief recovery.
Gasoline futures are leading the way lower this morning, adding to the argument that we may have seen the spring peak in prices a week ago, unless some actual disruption pops up in the coming weeks. The longer term up-trend is still intact and sets a near-term target to the downside roughly 9 cents below current values. ULSD meanwhile is just a nickel away from setting new lows for the year, which would open up a technical trap door for prices to slide another 30 cents as we move towards summer.
A Reuters report this morning suggests that the EPA is ready to announce another temporary waiver of smog-prevention rules that will allow E15 sales this summer as political winds continue to prove stronger than any legitimate environmental agenda. RIN prices had stabilized around 45 cents/RIN for D4 and D6 credits this week and are already trading a penny lower following this report.
Delek’s Big Spring refinery reported maintenance on an FCC unit that would require 3 days of work. That facility, along with several others across TX, have had numerous issues ever since the deep freeze events in 2021 and 2024 did widespread damage. Meanwhile, overnight storms across the Midwest caused at least one terminal to be knocked offline in the St. Louis area, but so far no refinery upsets have been reported.
Meanwhile, in Russia: Refiners are apparently installing anti-drone nets to protect their facilities since apparently their sling shots stopped working.
Click here to download a PDF of today's TACenergy Market Talk.
The Sell-Off Continues In Energy Markets, RBOB Gasoline Futures Are Now Down Nearly 13 Cents In The Past Two Days
The sell-off continues in energy markets. RBOB gasoline futures are now down nearly 13 cents in the past two days, and have fallen 16 cents from a week ago, leading to questions about whether or not we’ve seen the seasonal peak in gasoline prices. ULSD futures are also coming under heavy selling pressure, dropping 15 cents so far this week and are trading at their lowest level since January 3rd.
The drop on the weekly chart certainly takes away the upside momentum for gasoline that still favored a run at the $3 mark just a few days ago, but the longer term up-trend that helped propel a 90-cent increase since mid-December is still intact as long as prices stay above the $2.60 mark for the next week. If diesel prices break below $2.50 there’s a strong possibility that we see another 30 cent price drop in the next couple of weeks.
An unwind of long positions after Iran’s attack on Israel was swatted out of the sky without further escalation (so far anyway) and reports that Russia is resuming refinery runs, both seeming to be contributing factors to the sharp pullback in prices.
Along with the uncertainty about where the next attacks may or may not occur, and if they will have any meaningful impact on supply, come no shortage of rumors about potential SPR releases or how OPEC might respond to the crisis. The only thing that’s certain at this point, is that there’s much more spare capacity for both oil production and refining now than there was 2 years ago, which seems to be helping keep a lid on prices despite so much tension.
In addition, for those that remember the chaos in oil markets 50 years ago sparked by similar events in and around Israel, read this note from the NY Times on why things are different this time around.
The DOE’s weekly status report was largely ignored in the midst of the big sell-off Wednesday, with few noteworthy items in the report.
Diesel demand did see a strong recovery from last week’s throwaway figure that proves the vulnerability of the weekly estimates, particularly the week after a holiday, but that did nothing to slow the sell-off in ULSD futures.
Perhaps the biggest next of the week was that the agency made its seasonal changes to nameplate refining capacity as facilities emerged from their spring maintenance.
PADD 2 saw an increase of 36mb/day, and PADD 3 increased by 72mb/day, both of which set new records for regional capacity. PADD 5 meanwhile continued its slow-motion decline, losing another 30mb/day of capacity as California’s war of attrition against the industry continues. It’s worth noting that given the glacial pace of EIA reporting on the topic, we’re unlikely to see the impact of Rodeo’s conversion in the official numbers until next year.
Speaking of which, if you believe the PADD 5 diesel chart below that suggests the region is running out of the fuel, when in fact there’s an excess in most local markets, you haven’t been paying attention. Gasoline inventories on the West Coast however do appear consistent with reality as less refining output and a lack of resupply options both continue to create headaches for suppliers.