After A Big Friday Rally And A Quiet Overnight Session, Energy Markets Pushing 2-3 Cent Gains In Refined Products
After a big Friday rally, and a quiet overnight session, the buyers have stepped back into energy markets this morning, pushing 2-3 cent gains in refined products while oil prices are up about 50 cents/barrel. The fear of potential supply issues caused by escalation in the Middle East and the G7 sanctions on Russia continue to be cited as the driver of the big recovery rally after most energy contracts had their biggest weekly drops in 6-months to start October.
We saw the expected bandwagon bail out by money managers in last Friday’s CFTC COT report, with speculative funds reducing their bets on higher energy prices by double digit percentages across the board during the big selling just before Hamas invaded Israel. Based on what we saw Friday, it’s likely we’ll see a large percentage of those funds jumping right back on as the supply fear trade took back control from the demand fear trade for the time being.
Baker Hughes reported a net increase of 4 oil rigs active in the US last week, snapping the streak of declines that’s pushed the rig count to a 19-month low. US producers set a new all-time record for oil output last week according to DOE estimates despite the fact that the rig count is down by more than 120 from last year’s peak, and down more than 1,000 from the levels we saw in 2015.
The DOE announced the winners in a nationwide RFP to develop hydrogen hubs, and is providing $7 billion to 7 different projects across the country. Naturally, the administration that set to make natural gas pipelines impossible to build just before Russia invaded Ukraine is now authorizing natural gas as the primary feedstock for more than half of these projects as the world continues to come to terms with the physical realities of transition to cleaner energy sources and the legislators’ need for cheap energy to stay in power.
A California judge ordered P66 to stop construction on its Rodeo renewables facility due to ironic environmental concerns. It’s unclear whether or not the facility which is in the process of converting from a traditional refinery can continue making gasoline and diesel from crude oil while the court case proceeds. The lawsuit behind the order also targets the recently converted Marathon Martinez facility, although that plant is apparently still able to operate.
Reuters published an interesting read Friday on why new Chinese refining capacity is poised to protect Europe from diesel shortages again this winter, while capitalizing on cheap Russian crude.
A Dallas FED study shed further light on the change in exports from Russia since the Ukraine invasion, and the impact of sanctions by the G7.
The National Hurricane Center gives 70% odds of a new tropical storm forming in the Atlantic this week, but early forecast models suggest this storm will stay out to sea and not threaten the US.
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News & Views
View AllEnergy Futures Are Caught Up In Headline Tug-O-War This Morning
Energy futures are caught up in headline tug-o-war this morning with Canadian oil production concerns and a positive US GDP report trying to push prices higher while sinking Chinese demand worries and Gaza ceasefire hopes are applying downward pressure. The latter two seem to be favored more so far this morning with WTI and Brent crude oil futures down ~45 cents per barrel, while gasoline and diesel prices are down about half a cent and two cents, respectively.
No news is good news? Chicago gasoline prices dropped nearly 30 cents yesterday, despite there not being any update on Exxon’s Joliet refinery after further damage was discovered Wednesday. Its tough to say if traders have realized the supply situation isn’t as bad as originally thought or if this historically volatile market is just being itself (aka ‘Chicago being Chicago’).
The rain isn’t letting up along the Texas Gulf Coast today and is forecasted to carry on through the weekend. While much of the greater Houston area is under flood watch, only two refineries are within the (more serious) flood warning area: Marathon’s Galveston Bay and Valero’s Texas City refineries. However, notification that more work is needed at Phillip’s 66 Borger refinery (up in the panhandle) is the only filing we’ve seen come through the TECQ, so far.
Premiums over the tariff on Colonial’s Line 1 (aka linespace value) returned to zero yesterday, and actually traded in the negatives, after its extended run of positive values atypical of this time of year. Line 1’s counterpart, Line 2, which carries distillates from Houston to Greensboro NC, has traded at a discount so far this year, due to the healthy, if not over-, supply of diesel along the eastern seaboard.
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WTI And Brent Crude Oil Futures Are Trading ~$1.50 Per Barrel Lower In Pre-Market Trading
The across-the-board drawdown in national energy stockpiles, as reported by the Department of Energy yesterday, stoked bullish sentiment Wednesday and prompt month gasoline, diesel, and crude oil futures published gains on the day. Those gains are being given back this morning.
The surprise rate cut by the People’s Bank of China is being blamed for the selling we are seeing in energy markets this morning. While the interest rate drop in both short- and medium-term loans won’t likely affect energy prices outright, the concern lies in the overall economic health of the world’s second largest economy and crude oil consumer. Prompt month WTI and Brent crude oil futures are trading ~$1.50 per barrel lower in pre-market trading, gasoline and diesel are following suit, shaving off .0400-.0450 per gallon.
Chicagoland RBOB has maintained its 60-cent premium over New York prices through this morning and shows no sign of coming down any time soon. Quite the opposite in fact: the storm damage, which knocked Exxon Mobil’s Joliet refinery offline on 7/15, seems to be more extensive than initially thought, potentially extending the repair time and pushing back the expected return date.
There are three main refineries that feed the Chicago market, the impact from one of them shutting down abruptly can be seen in the charts derived from aforementioned data published by the DOE. Refinery throughput in PADD 2 dropped 183,000 barrels per day, driving gasoline stockpiles in the area down to a new 5-year seasonal low.
While it seems all is quiet on the Atlantic front (for now), America’s Refineryland is forecasted to receive non-stop rain and thunderstorms for the next four days. While it may not be as dramatic as a hurricane, flooding and power outages can shut down refineries, and cities for that matter, all the same, as we learned from Beryl.