An Uncomfortable Calm Is Gripping Global Energy Markets After Some Wild Back And Forth Action

An uncomfortable calm is gripping global energy markets after some wild back and forth action the past two days. Crude oil prices have eased by $4/barrel and Refined products have pulled back 10 cents from their Monday night highs in the wake of the Russian invasion of Ukraine, and are starting Wednesday’s session on a quiet note. Even the notoriously volatile natural gas prices are acting relatively docile despite the huge potential fallout from the economic cold war.

There’s a noteworthy divergence emerging between near bullish fundamentals and technical that are looking suddenly bearish. On the fundamental side, demand estimates continue to increase as COVID restrictions rapidly ease, while supply increases continue to lag behind the estimates for 2022, even before factoring in the potential disruptions from Russia. Technical studies meanwhile are starting to look top heavy after the sharp reversal Tuesday as traders appear to have once again played the buy the rumor and sell the news game with energy contracts. Diehard chartists love to say that the headlines follow the prices, not vice versa, and the price action in the next few days will provide an interesting case study into that argument.

It’s not just crude oil that’s tight. Prices for soybeans and its oil have been moving sharply higher again in recent weeks as demand for both food and fuel from the beans increase, and supplies from South America are struggling pushing up the price for everything from tofu to D4 RINs. China announced it would release soybeans and edible oils from its strategic reserves to help minimize the increase in prices.

4th quarter earnings releases from refiners are showing some consistent themes this week. Big improvements in demand, good but not great margins, and challenges with both severe weather and labor impacting operations. 

Speaking of refinery operations: Traders didn’t seem too concerned about the explosion and fire that injured 5 workers at one of the Country’s largest refineries Monday, with US Gulf Coast basis values barely flinching after the long weekend. That plant was undergoing maintenance already so output may not be impacted, and local terminal operations are not showing signs of any product tightness following the fire.

The IEA released its global Methane tracker this week, once again shouting from the rooftops about the need to reduce these emissions and some of the “cost effective” ways to accomplish that goal. One interesting note from the report: Turkmenistan accounted for nearly 1/3 of the major emissions events recorded globally last year. Perhaps Russia will invade them next to help the world combat climate change.

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