Energy Market Updates

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NYMEX

Diesel remains Volatile at the Rack, Despite some Supply & Market Easing

Diesel prices remain the talk of the table as they have shed over $1.00 in the last 15 days.  Spot cash prices which at one point in early May were $1.25 over futures have since retraced to be roughly $.20 over.   Still, by way of comparison, high to the first quarter of the year where they were pegged mostly flat  to the screen.   (see below). 

As we mentioned, these blowouts are typically short lived - but nonetheless still very painful for many. 

Northeast diesel supply appears to be slowly loosening up as the backwardation from JUNE to JULY screens sits at roughly $.13, still very high but not as high as a two weeks ago.  While some suppliers are willing to take in product, it has made rack pricing extremely volatile.  Typical spreads from high to low are maybe $.08 to $.10, at present, these spreads are $.40 to $1.00, not to mention figuring out who actually has product to sell.  On que, refiners' distillate production is up over 5% thus far in Q2, capitalizing on the high prices and pipeline scheduling appears to be full.  While this a good news for consumers, we are still at very high prices. 

With China slowly reopening, expected high US gas demand and all eyes on the FED wondering if there will be another rate hike to tame inflation, I would expect it to be a while before we start to see substantially lower prices. 

The suggested release of diesel reserves is not typically looked at as a fix of underlying issues, more of like taking aspirin for a tooth ache, and will likely not have much of an effect on pricing. 

5.24.22

 

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Wild Intraday Swings on ULSD

The last three sessions have seen .4373 get peeled off the ULSD front month contract, with massive intraday swings.  Yesterday at the open, APR22 ULSD fell almost .25 before rallying back to finish down only .0673. 

The big drop on Monday was attributed to China locking down Shanghai amid new outbreaks for a minimum of four days thus putting demand fears into the market.  Tuesday saw traders take into account that there appeared to be progress in peace talks amongst Ukrainian and Russian delegates, but that subsided as the day went on.  This morning that sentiment furthered as it appeared there was nothing to report on the situation other than both sides would agree to meet again.  It is clear that many sanctions that have been put in place, may have a longer stay even if there is a withdrawal.

Pricing is wild right now, cash markets are making it even more challenging. 

The Chart below doesn’t do much other than confirm Warren Buffett’s take “that if you flip it over, it says the same thing.” 

With Demand appearing to take a hit in this week’s DOE report, and subsequently Inventory rising, products have come off there morning highs by about .15 and are only up about .04 at present.  On a positive note, most OPEC nations have come out and stated the they would not let Politics get in the way of production levels, which may calm supply fears, evident in the .32 backwardation APR to MAY.

ULSD 3.30.22

 

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March Comes in Like a Lion -ULSD See-Saws on Russia, Inventories

March came in like a lion, lets hope it goes out like a lamb…..  

So far this month, front month Diesel shot up over $1.80 to peak just above $4.60, then proceeded to fall $1.60 to just under $3.00 and now has risen back over $1.00 to be currently trading just north of $4.00.  What’s even more wild are the intraday swings.  Believe it or not, yesterday morning we were actually negative for a bit earlier in the session before finishing up over .25 on the day.  Today is opposite thus far, being up almost .10 early on, and now trading down .04. 

Obviously the Russian invasion is still the main catalyst for the rise, as fears linger that the US does not have a quick enough reaction time, or a plan in place to domestically produce more should this conflict linger.  Unfortunately, politics are weighing in on some rational decisions.  Many sanctions put in place have special caveats carving out energy like todays joint action from the European Union to date has carved out sanctions exemptions to allow continued imports of natural gas and oil from Russia, given the difficulty and expense of quickly finding alternative supplies “  Yesterdays big rise was after the weekly inventory report that showed large draws in all products, again not fundamentally tied to any Russian sourced product, just the fear of our inability to react. 

I am asked 50 times a day, What is going to happen? I honestly wish I knew, but what I can say that from a business perspective is that you need to be nimble and able to pivot. While I doubt this is going to be the new normal and will likely short lived, the effects of these records prices are going to linger for some time.

Market Screen 3.24.22

 

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Markets Soar on Vaccine News, Presidential Transition

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Final answers to lingering questions shot markets up today - Oil markets hit an 8 month high and the stock market soared,  with the Dow breaking 30,000 for the first time. Airlines, Cruise Lines, and Energy stocks all pushed up on continuing positive news regarding a COVID-19 vaccination. 

In intraday trading, WTI surged over 4 % to $44.80 (the last time we saw the $45 benchmark hold was in March, prior to both the Saudi/Russian price war and the expanding of COVID into a full blown global pandemic. In other words, its been quite some time. Who can even remember life before lockdowns started?).

Since November 9 (first vaccine announcement) Crude has gained ~15% and Brent is in backwardation, another positive sign. 

ULSD & RBOB both traded up over .05+ the majority of the trading day. At the close, ULSD was up +.0490 to 1.3595 for December & +.0484 to 1.3642 for January. RBOB gained +.0542 for December to 1.2582, and +.0539 for January to 1.2510. Crude closed at $44.91/bbl - juuuuuuust under that $45 benchmark. 

Earlier in the month (November 9) we saw markets jump on the announcement by Pfizer that they had developed a 90% effective vaccine. AstraZeneca and Moderna have also announced success on their iterations of a vaccine, one of which has the potential to solve some of the logistical issues regarding cold storage transport posed by the initial vaccine. Obviously, a vaccine means markets are hopeful that we will see a transition back to "normal" sooner rather than later, and the rally in industries particularly hammered by lockdowns, including air travel and general transportation would seem to bear that out. 

The other factor pushing markets today is the official start of the transition of power to the Biden Administration. Given the legal challenges being raised by the Trump Administration regarding vote counts, there was substantial uncertainty around the transition, and if there's anything the market hates, its looming questions without answers. It seems that the clarity is boosting confidence.

Lest we get overly optimistic however, it's important to note that although vaccine news is good news - none of the vaccines announced have been approved for general use yet. We are also still in a surge of COVID cases right now and there is no timeline on when a large enough contingent of citizens will be vaccinated in order for restrictions to begin easing. Goldmann Sachs & JP Morgan have revised economic expectations due to surging, New York City has closed schools again, and even in Massachusetts we are seeing field hospitals being reopened to handle expected increases in cases. All of this to say while today was great for 401(k)s, it is probably premature to be overly optimistic about the next few weeks to months. 

Despite all the craziness of 2020, we're Thankful to be here still working for our customers. We hope you have an amazing and relaxing (social distant) Thanksgiving. Enjoy the long weekend! 

 

 

 

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Mixed Market Week on Same Old Concerns

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Happy Friday!

We are ending out a mixed week on the NYMEX today, to put it mildly. Monday & Tuesday were both substantial down days with the market shedding over 4 cents (.0433 and .0473, respectively) on ULSD both days, and landing Crude at $55.21 at Tuesday's close. 

Wednesday & Thursday however, saw the NYMEX jump up substantially.

Wednesday's inventory numbers fell short of expected builds and we saw intraday highs over 5 on refined products, with the close reflecting +.0347 on ULSD ($1.8921) and +.0526 on RBOB ($1.6563) and Crude closed at $57.11. 

Thursday gains were around 2% with ULSD closing up +.0526 to $1.9447, RBOB +.0481 to $1.7044 and Crude up to $58.58, a two month high. 

Today we saw the market shed some of the week's earlier gains, with ULSD down -.0153 to $1.9294, RBOB off -.0301 to $1.6743 and Crude closed out at $57.77, about back where it was Wednesday mid-morning. 

So what's going on? Good question. It seems a lot of the back-and-forth action this week (and for a few weeks prior) has primarily been the result of ongoing speculation and reaction on three repeating themes 1) China-US Trade War 2) OPEC Cut questions 3) Global economic concerns.

Essentially we have been bouncing up or down based on reaction to inventory reporting, economic reports, rumors of progress then retreat on ongoing China-US discussions, tariff delay questions, and uneasiness about what OPEC may or may not announce regarding cuts at their December 5th meeting. 

Hopefully there is some solid direction on any of these questions over the next few weeks, or it's anyone's guess when the see-saw action will subside. Until then, it's Deja Vu all over again, as they say. 

Stay tuned!

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NYMEX spikes in wake of Saudi Arabia attacks

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Saturday, ten unmanned drones struck a major Saudi Aramco facility in Saudi Arabia, and immediately took 5.7 million barrels out of the global supply. The Abqaiq plant that was impacted is one of the world's largest processors. 

The Saudi government indicated that Iranian weapons were responsible but stopped short of blaming Iran for the attack, (although US Secretary of State Pompeo did NOT stop short and explicitly called Iran out in a series of tweets).

Yemeni Houthi rebels have taken credit for the strike, and threatened further escalation but it's unclear if they are, in fact, responsible.

Initial reports seem to indicate the attack did not come from Yemen, but Iran has denied any involvement. A lot of the long range implications of the attack will of course hinge on whether military escalation from other nations becomes probable, which directly depends on whether Iran, Yemeni rebels, or a third party was responsible. 

Markets reacted in a big way - Crude was up on the overnights, and Crude, ULSD & RBOB all surged within seconds of the open, and never came back down. 

At the close, ULSD was up a whopping +.2060 to $2.0838, RBOB +.1993 to $1.7524 and Crude $62.90 (+8.05 over Friday's settle) 

This is still a developing story - CNN has a great, continually updating article you can follow new developments on in real time here: Saudi Attacks Send Oil Prices Soaring 

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Markets Spike on Vessel Attacks near Strait of Hormuz

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So much for no major events on the horizon.. After yesterday's drop, where Crude closed out at a 5 month low, this morning the NYMEX was up sharply across the board on developing news of tanker attacks in the Gulf of Oman. 

The attack was reportedly on two tankers at 6:12 & 7:00 am this morning local time. Crews were evacuated, and thus far both vessels are still afloat, according to Fox news this morning. 

The area the vessels were hit in is close to the Strait of Hormuz, a critical passageway for oil in the Middle East, with approximately 20% of Global volume passing through the Strait. 

The market was up 4% this morning on the news, and we will have to wait and see what further impacts there are as the story develops. It is unclear how safely vessels are able to travel the Strait currently, and it is unclear who attacked the vessels (although some unsubstantiated claims from a group in Iran have surfaced).

Again, this is developing, so we don't yet know what exactly happened, or what the full impact may be. 

For a great explanation of this morning's market reaction, as well as continuing updates, follow this story on CNBC here:

Oil Jumps 4% on Reports of Tanker Attacks in the Gulf of Oman

 

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OPEC vs "NOPEC" Drama Pushes NYMEX Up

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The NYMEX was up today across the board, with Crude closing out at $63.08/bbl, comfortably above that $60 benchmark, and refined products both edged up almost 3 cents, with ULSD closing at 2.0424 (+.0290) and RBOB settling at 1.9687 (+.0288).

So what's going on?

March Oil production from OPEC on preliminary reporting is down 570k barrels per day, primarily driven by drops from Saudi Arabia and Venezuela.

Domestically, rig counts are up, suggesting some level of confidence in prices stabilizing or continuing to increase on the part of producers. Crude production levels are still up overall as well.

Another factor coming back into play this week was the so called “NOPEC” (“No Oil Producing Cartels”) bill in the US that aims to hold OPEC nations potentially liable for what are considered “cartel-like” practices. Currently (and historically) there is no real legal recourse against things like so-called market fixing and this bill aims to change that in terms of establishing liability.

The reason we care about this bill popping up again is that rumor has it the Saudis are responding to the prospect of the bill being pushed through by threatening to drop the dollar as the currency basis for their oil trading.

This might sound familiar because the same thing happened a few years ago. Threats over currency changes and essentially market flooding by the kingdom led to prices crashing (back when we ended out at $30/bbl, from the $100 ish its hard to remember being used to), which drove a substantial number of US based producers out of business (particularly those highly leveraged on shale plays). At the time, the Saudis essentially had enough cash in hand to allow the prices to bottom in order to retain market share and production dominance, where anything under $50-60 a barrel was unsustainable for US companies. 

 So long story short, the threat to replace the dollar is the threat to wreak havoc on the US economy via crashing the market. (One would hope the irony of that being your response to being called a cartel would register)

A point to remember is that at the end of the day, despite production level increases, the US is still a marginal producer, not a swing producer like OPEC, so production is almost fully determined by market price levels. And the dollar being removed as the basis for trading could seriously impact those price levels.

 So at least for today, we closed up on all the drama, but also the fundamentals.

 Time will tell if we hang around the $60 benchmark, or continue to move upward and a substantial portion of which way we go will depend on continuing production cuts globally, and what happens on currency basis changes.

 Stay tuned!

 

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NYMEX Plummets on Renewed Fears of Supply Glut

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Futures are crashing on the NYMEX today, with WTI down around 5% thus far on the day, around the $48/bbl mark, on track to potentially close out at a 15 month low. Refined products are tanking as well, at time of writing, ULSD is off .0472 & RBOB is down .0341

So what's going on?

Once again, it appears the sell off is based on concerns of global oversupply, with the headline being that Russia is reportedly increasing output. The hike could put them at close to 11.5 million barrels per day, according to MarketWatch. 

You may recall that earlier this month prices spiked on the announcement that Russia & OPEC nations were agreeing to cut production by a combined 1.2 million barrels (here's a refresher: OPEC+ Agreement Spikes NYMEX)

Apparently, Russia has changed its mind. 

Along with the news about Russian production (unconfirmed news, for the record) the US has reportedly been upping shale production by more than what analysts had predicted, and globally, it looks like China is potentially poised for a slow down in demand growth, which is also weighing on prices. 

The EIA inventory reports due out later this week may impact whether the decline backs off or continues. Platts is predicting inventory draws on Crude & Distillates, so if they are wrong, we can expect some more downward movement on the EIA release.... theoretically anyways.  

Stay tuned!

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OPEC Concerns Trump EIA Numbers to Drop Crude Prices

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Oil was down today as the market weighed out OPEC speculation on one hand, and a drop in US Crude inventories on the other.

OPEC concerns seem to have won the day, given the drop in the face of an EIA report indicating a 3.4mmb drop (projections were 2.3mmb drop), some of which is presumably attributable to the Keystone pipeline leak & subsequent supply diversions.

Refined products showed builds of 2.7mmb on distillates, 3.6 mmb on gas. (projections were 230K and 1.3mmb, respectively).

OPEC is set to meet tommorow (Thursday) in Vienna to discuss extending production cuts through the end of 2018. 

The current deal keeps 1.8mmb/day off the global markets via production cuts, and is set to expire in March but a new agreement would extend it through December. The running assumption was that it would be a no brainer to extend, but surprise, surprise, a few days out from the meeting and Russia had not yet agreed on anything. Thoughts are they may argue for a shorter agreement or push for renegotiation closer to the March expiration.

What does this all mean?

The assumption in the market currently has been that the OPEC deal extension is essentially "priced in" already. What that means is that failing a 9 month extension, we could see the recent gains evaporate rather quickly and see crude prices dip, with WTI falling back at or below the $50 benchmark, or even lower than that if there is no deal at all. 

From OPEC/Russia's side of the aisle, an agreement on production cut extension to bolster pricing may be met with continued increase in US domestic production, which could both offset gains and damage their market share in the long view. That position is somewhat supported by rebounding US production levels & refinery utilization rates. 

Last week we saw WTI close out at a high of $58.02, but it has receeded over the past few sessions, closing today out at $57.30. ULSD & RBOB tumbled today as well, with ULSD dropping .0286 to 1.9221 and RBOB dropping .0411 to 1.7309. 

Stay tuned!

 

 

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