Another Strong Start For Refined Product Prices As Another Round Of 7 Year Highs Are Being Set Across The Petroleum Complex
It’s another strong start for refined product prices as another round of 7 year highs are being set across the petroleum complex this morning. Supply concerns seem to continue to outweigh nervous equity markets, even after the FED made it clear that the free money party is coming to an end.
Diesel prices are once again leading the charge, trading up nearly a nickel on the day, making a run at the $2.80 mark just 3 days after they traded down to $2.60. This $2.80 range could prove to be a significant technical barrier as it was a support layer for months back in 2014, and when it finally broke prices collapsed in a hurry. Old support often becomes new resistance on the charts, but if it’s treated as nothing more than a yield sign as most resistance has lately, then a run at $3 seems inevitable as the supply crunch continues.
The DOE’s weekly report continues to encourage the rampant buying in diesel futures, with days of supply down to 25, a number that’s more fitting of a major supply disruption. While racks across most of the country have recovered from the historically week levels in the front half of January, there’s no sign of any major supply issues in US physical markets.
Gasoline prices have joined in on the fun, finally reaching new 7 year highs even though the prompt futures contract is still a winter spec. This recent surge, well ahead of the normal spring rally, leaves a run at the $3 mark a possibility for summer gasoline grades as well, even though fundamentals in the US also suggest that this market may be outkicking its coverage.
The FED did not raise rates Wednesday, as was widely expected, but equities reacted harshly to the FOMC Chair’s news conference in which he made it clear that they were preparing to end the money printing and raise rates throughout the year. This was a harsh reminder that the current chair is one of only 2 in the past 40 years that did not come from the academic world, and seems to take inflation more seriously than his predecessors. Already fed fund futures are showing a higher probability of 4 or more rate hikes this year than they did yesterday morning.
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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.