Energy Market Updates

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Fundamentals

Sideways Action in the Markets as the Season Shifts

We suggested last week that there would likely be sideways action in the market as everyone digests what impact production cuts will have, and that is exactly what has happened.  We have seen large daily moves, but overall we are just about where we were a week ago. 

For most of us, we are coming into our busy season, putting boats in the water, paving or landscape crews coming back, large summer construction jobs, or more runs added to the fleet.  In my many discussions with customers, most are cautiously optimistic about the coming months.  The top two topics are still People and Pricing.  The Labor problem doesn’t appear to be going away anytime soon as most of us are doing more with less, and for the most part, getting used to it.  Pricing for physical goods has started to ease,  but those “services” we all rely on remains higher (again because of the labor market). 

Fuel pricing over the summer will likely be dependent on more fundamental forces than anything else as we appear to be at a comfortable price range.  China’s demand will be a major factor as currently Crude Imports are now at their highest level in over 3 years.  Domestic Diesel demand, while falling slightly week over week, is still about 8% higher than last year.  Physical fuel supplies remain in a delicate balance as a number of supplies try to navigate the stubborn backwardation in the futures market. 

The Supplier-Customer relationship could be tested over the summer should a well timed Hurricane hit the Gulf.  Spring is always a great time to do housekeeping.  A fresh coat of paint on the fill covers, cleaning away any shrubs from tanks, making sure steps are secure, always helps us be able to serve you better. 

4.13.23

 

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ULSD Continues to Skyrocket on Short Squeeze

Unfortunately you are all reading your nightly pricing correctly.  As seen below, ULSD prices have risen almost a full $1 in the last four sessions. 

2022-04-28_12-40-27

As I mentioned earlier in the week, it is likely due to a short squeeze versus anything fundamentally related to the Oil Markets.  Although there are some pointing to distillate stocks being at their lowest level in 14 years as a driver, it appears that is being over played because demand for ULSD has fallen for the fifth week in a row. 

Front month MAY ULSD (which falls off the board Friday) is a full $1 higher than JUNE trading presently at $4.9950.  It is $1.50 higher than front moth NL @ $3.5250.  Its important to note the disconnect to Crude which is “only” at $103 and change.  For those of you that remember July of 2008, when Crude was at an all time high of $147, Diesel was trading just above $4.00.  All the more evidence to point towards a squeeze versus fundamental factors. 

The problem is, how long does this last?   Looking at the strip above, the backwardation is still healthy out through December, not as pronounced but still present. 

I would like to say that we are past this after Friday, but my feeling is the rocket ship-feather theory will hold true. 

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NYMEX Stays Range Bound with Strong Pull Back

Most pundits have been warning of upside breakout potential with this market for the last several sessions. When you really look at HO for the last four months, the defined range of 2.95 to 3.05 has held, with conviction. As much as I try to disprove the techies with fundamental basics, I am batting roughly .146 since October. That's a slump!

Although, we must point that todays selling seemed to be a reaction to China data reporting that runaway inflation is imminent. The news should have sent futures higher but those trying to avoid risk proceeded to sell off. Additionally, the Saudi Group has acknowledged lower production rates, signaling to the investors that demand may be waning in the weeks to come.

This weeks massive builds in products weighed heavy today in the minds of traders as many had to decide to be long or short with it almost 40 degrees in mid January. At the close, Crude fell .26 to $93.56, HO lost .0458 to $3.0085 and RBOB slipped .0538 to $2.7395

DAILY HEATING OIL CHART

Heat map

RBOB CLOSE
CLOSE CHANGE
 
FEB 27395 -.0538
MAR 27543 -.0483
APR 29165 -.0381
MAY 29072 -.0375
JUN 28771 -.0253
JUL 28422 -.0335
HEAT CLOSE
CLOSE CHANGE
FEB 30085 -.0458
MAR 30018 -.0438
APR 29901 -.0422
MAY 30210 -.0410
JUN 30050 -.0398
JUL 29969 -.0385
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