Another Day Another Round Of 7 Year Highs
Another day, another round of 7 year highs for Nymex energy contracts. Refined products are leading the way higher again this morning with calendar and crack spreads both strengthening following a large decrease in refinery runs reported yesterday by the DOE, and aided once again by stronger RIN values. The charts continue to favor more upside, with a run at $90 crude still looking likely.
In addition to the now-standard supply squeeze justification for the steady march higher, yesterday we saw space on Colonial’s main gasoline line drew a positive value for the first time since the cyber-attack in May as the pipeline was allocated for the first time in more than a year. Historically, the 4th quarter has drawn some of the strongest values for space on Colonial’s mainlines, when they used to be allocated anyway, as the Gulf Coast will typically become long in the winter and open the arb to the east coast.
That said, this could be a short term phenomenon caused by the Plantation downtime as shippers look to alternate options to get caught up, rather than a return to the days when CPL space regularly traded for big premiums. New York harbor spots are severely backwardated, with nearly 5 cents of value for product available today vs 2 weeks from now, which also suggests the market sees a short term squeeze on supplies, and once that squeeze is over, we may see an end to the rally in futures as well.
Refiners slashed run rates in 4 out of 5 PADDs last week, with total US run rates dropping more than 4% on the week. That type of move is typically caused by a major disruption like a hurricane, but in this case it seems to have been caused by a combination of planned maintenance and unplanned upsets. We have also seen numerous refiners defer or delay maintenance in the aftermath of Hurricane Ida.
The tropics remain quiet with 6 weeks left in the hurricane season. Currently there’s only one system being tracked by the NHC, but it’s given almost no chance of developing and it’s position makes it a non-threat to the US. That said, a La NIna system in the Pacific has formed, which could increase the odds of more storms forming before this season comes to an end.
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Energy 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.