Market Talk

News from the TACenergy Trading Desk. Stay up to date with all the relevant energy market news and latest information. Subscribe with the button on the right to get the daily TACenergy Market Talk e-newsletter delivered directly to your inbox each workday.

United States President Has Met With Leader Of North Korea

Donald Trump and Kim Jong-un had a historic meeting late last night as the first time a sitting United States President has met with the leader of North Korea. While terms remain vague and no immediate action will take place on part of the US, a deal was penned to completely denuclearize North Korea in exchange for the removal of US forces from South Korea and cessation of aggressive military drills in the area. The equities markets are in a slight buy-the-rumor-sell-the-news mode this morning as they record light losses. US gas and diesel futures are off 50 to 100 points this morning, WTI down just slightly over a dime.

Moderate moves in the energy futures markets will likely be the name of the game until the OPEC meeting Friday of next week. There have been some reports of Saudi Arabia and Russia, one of the major non-OPEC attendees, leaning more towards bolstering production rates. OPEC’s monthly report published early this morning shows The Kingdom is already dialing up the production to make up for setbacks seen in Venezuela, Nigeria, and Libya. The cartel’s total oil production rose by 35mbd last month.

The first tropical disturbance since the end of last month has popped up in the Western Caribbean Sea overnight. The disturbance currently has a 10% chance of developing into a cyclone formation over the next 48 hours but has a greater potential of organization once it moves into the Gulf next week. The first named storm of the 2018 Atlantic Hurricane Season was TS Alberto which made landfall in the panhandle of Florida on May 28th, with little-to-no effect on energy infrastructure in the area.

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WTI’s Furious Rally Stemmed Off Weekly Loss

WTI’s furious rally Thursday stemmed off a weekly loss for the contract, leading some to believe the almost-year-long rally isn’t dead yet.

The US crude oil benchmark will likely fluctuate ahead of the OPEC meeting set for June 22nd, as traders attempt to predict if the cartel will adjust production levels.

President Trump is set to meet with Kim Jong-un tomorrow. While the outcome of this meeting won’t likely affect energy fundamentals, it could help dissipate some geopolitical tension.

RINs got a little bump on Friday, no solid news on the future of the RFS mandate.

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Energy Futures Off To A Slow Start

Energy futures are off to a slow start Friday, after a furious reversal Thursday rally wiped out most of the losses from earlier in the week.  The bounce has kept Brent and ULSD futures well above their year-old bullish trend, and have RBOB and WTI on the cusp of regaining theirs.

News that the Venezuelan oil export situation has gone from bad to worse was cited frequently to explain the price rally, while technicians may argue that the bounce had more to do with chart support holding than any change in fundamentals.  If prices can manage to continue the rally today, there’s a case to be made fundamentally and technically that we could see stronger prices ahead of the OPEC meeting in 2 weeks.

A fire at the Citgo refinery in Corpus Christi helped spur the rally further, although later reports suggested that operations would not be “significantly” impacted.

Here we go again:  After years of “discipline” enforced by the oil price bust, the oil-field economies are once again showing the consequences of the next boom.

Ethanol RIN values fell back to the low 20s Thursday, a day after spiking by more than a dime when senators declared that the proposed plan to update renewable policy had been rejected.

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5 Days Of Selling Knocked 11 Cents Off Prices

After 5 days of selling that knocked 11 cents off of prices, gasoline & diesel futures are trying to rally this morning as traders do their best to pretend they didn’t see the brutal demand estimates from the DOE yesterday that led to inventory builds across the board.

US Petroleum demand was estimated to drop by more than 100 million gallons/day (11.6%) last week moving from above the 5 year range to below it in just one data point.  Diesel demand led the decline with a 19% drop, while gasoline demand was “only” off 7%.  While the post-Memorial day week does typically see a pullback in consumption, it’s usually a fraction of this size, which may say more about the challenges with estimating consumption in the world’s largest economy than it does about actual consumption.

Diesel stocks rose for a 2nd week, but remain below their seasonal 5-year range, and are roughly 23% below where they were this time in the past 2 years.  Refiners seem up to the challenge, with diesel output climbing again on the week, and poised to break new records this summer.

PADD 2 refinery runs set another new record last week, and seem to be limited only by access to crude oil in continuing to expand.  Reuters makes an interesting note that of all things, it may be wild rice that’s ultimately standing in their way.

US crude oil output reached 10.8 million barrels/day for the first time ever last week, and remains on track to challenge 11 million barrels/day later in the summer.

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Refined Products Selling Off For 5th Straight Session

Refined products are selling off for a 5th straight session, and oil prices are following close behind after managing to reverse course in Tuesday’s session to finish the day with gains.

After more than 2 weeks of heavy selling, short term indicators had moved into oversold territory and were begging for a bounce like we saw yesterday afternoon.  The question for the rest of the week is whether sellers can gather enough momentum to challenge the longer term chart support just a few percentage points below current values.

While WTI & Brent get most of the attention, Western Canadian oil prices spiked more than $12/barrel this week after Enbridge backpedaled on proposed changes to its pipeline nomination system.  With Venezuelan production crumbling, Western Canadian barrels are in high demand among gulf coast refiners as the heavier grade is a better fit for existing plant configurations than the lighter sweeter options being produced in most of the shale plays across the US.

The API was said to show draws in crude oil and diesel stocks of 2 million and 871 thousand barrels respectively last week, while gasoline stocks swelled by more than 3.7 million barrels for the week.  The DOE/EIA version of the weekly inventories is due out at 8:30am mountain time today.

The EIA reported  this morning that US refiners exported 27% of their total distillate production in 2017, as the US Gulf Coast increased its position as the refined product supplier of the Americas, whether they be north, south or central.

Still no word from the white house on the renewable fuel compromise that’s been rumored for weeks, and was reportedly due to be released on Monday.  Other unconfirmed reports suggest that senators from Iowa aren’t happy with the proposal and are saying there’s no deal.  Ethanol RINs climbed back above the 20 cent mark on the lack of news yesterday and have spiked to 29 cents this morning.

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Energy Futures Sliding For Fourth Straight Day

Energy futures are sliding for a fourth straight day as supply increases take the pole position in the rumor race, and technical support levels crumble.

Reports that the US asked Saudi Arabia to increase production are taking blame for the sell-off this morning, one of many story-lines that will be debated as the count-down to the June 22nd OPEC meeting continues.

As we approach the 3 week mark since Brent broke above $80, most of the futures contracts are close to giving back all of their May gains.  While WTI lagged behind the rally, and has led the losses as its discount to Brent reached its widest in over 3 years, the US-based contract has found a bid this week, bouncing from $11 last week to the mid-$9 range this morning.

As the trade war stories rage on, the WSJ notes that China’s rapidly expanding crude oil reserves may be skewing the calculations of global oil inventories, and perhaps overstating the rebalancing story.

The White House did not release its official plan for changes in renewable fuel policy Monday as expected.  RIN values still sold off however, with current year ethanol RINs reaching their lowest levels in nearly 5 years.

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Energy Markets Sliding Further Into Correction Territory

Energy markets are sliding further into correction territory to start the week as technical support is breaking down and the speculative funds that have helped push prices higher appear to be heading for the exits.  The OPEC meeting June 22nd will take a great deal of the market’s attention for the next few weeks, and as a Bloomberg story pointed out over the weekend, the cartel’s interests are diverging rapidly.

WTI is trading below its weekly trend-line that’s held up the rally from $42 last June.  If prices can finish the week below that support, the door will be open for a run at the $60 mark over the next few weeks.

Money managers cut their net-long holdings in WTI & Brent for a 7th straight week, reaching their lowest levels in nearly 9 months.  Speculators also cut their record net long holdings in RBOB gasoline by almost 14,000 contracts on the week, but still need to cut nearly 5 times that amount to reach their previous seasonal range which suggests we could see more severe selling if the liquidation continues.

Swap dealers continue to hold near the record-setting net-short position in WTI suggesting that producers are comfortable holding onto their hedge positions as production ramps up.

Baker Hughes reported 2 more oil rigs were put to work last week in the US, bringing the total count to a fresh 3 year high at 859.  With US oil production hitting new records on a weekly basis recently, it’s worth pointing out that the total rig count is barely ½ of what it was at the peak in 2014.

Multiple news reports this morning say that the White House is supposed to announce planned changes in biofuels policies later today.

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WTI Futures Dragging Rest Of Energy Complex Lower

WTI futures are dragging the rest of the energy complex lower to kick off June as traders seem to be betting heavily that US oil transportation assets can’t keep up with record setting US oil production, and shrugging off a decline in crude oil inventories.

This theme could be pivotal over the next few weeks as it’s possible that WTI’s weakness could either spell an end to the bull market, or  Brent and refined products could simply shrug off the “land-locked” contract and continue their move higher.

The WTI/Brent spread has reached its widest levels in more than 3 years this morning, and regional prices in West Texas and Western Canada are collapsing even further.  Brent futures are at $77, WTI futures at $66, WTI in Midland is going for around $54, while WCS is trading around $41.

US refinery runs surged last week, with all 5 PADDs increasing as plants return from a 5 week period of heavy maintenance.  PADD 2 rates reached an all-time record last week, and with Midwestern refiners having some of the best access to the cheap Canadian crude, we should see record run rates all summer long if plants can manage to avoid any unplanned downtime.

The May jobs report showed 223,000 jobs added, with both the headline and “U-6” unemployment rates declining again to the lowest levels since 2001.  Equity futures dipped on the news, as the strong employment figures, with a hint of wage inflation, should encourage the FED to hold steady with its plan for more interest rate hikes this year, which helped put some additional pressure on energy futures.

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