Baker Hughes Reported Another Drop In The US Oil Rig Count Last Week
Energy markets are mixed to start the week, with ULSD trying to move higher for a 2nd day, while gasoline and crude oil prices hold just below breakeven in the early going. Friday’s big recovery rally fizzled in the last hour of trading and prices failed to threaten the downward sloping trend-lines on the weekly charts, which sets up the chance for another sizeable price drop in the coming weeks if we don’t see a sustained rally soon.
Baker Hughes reported another drop in the US oil rig count last week, with a net decrease of 2 rigs, bringing the total to the lowest level since January 2022. Natural gas rigs held at 118 last week and have been essentially unchanged since early September. A Reuters article Friday suggests that oilfield services companies are preparing for a rough patch in the months ahead with little hope for an increase in drilling rates.
The Commitments of Traders weekly report data is delayed until this afternoon due to the Federal Government sort of recognizing Veteran’s Day on Friday. It seems highly likely that we were watching some heavy liquidation by money managers during last week’s sell-off, but since that report is compiled with positions from Tuesday, we may not see the full picture of what happened until the next report on Friday afternoon.
OPEC officials tend to agree with that expectation, citing speculators for the recent drop in oil prices in its monthly oil market outlook, while holding their demand forecast for steady growth in 2024. The report specifically highlights Chinese crude imports as a driver of the strength in oil demand, despite “overblown negative sentiment” about economic activity in the world’s largest importer. OPEC officials also cited strong demand in the US, with a resurgence in airline traffic the key driver, while vehicle miles traveled is also showing signs of strength.
OPEC’s oil production ticked higher by 80mb/day during October, the 2nd month of increased production, as gains in Iran (who the US continues to allow to bypass sanctions) and Angola offset declines in Saudi Arabia and Kuwait.
While Accuweather declared an early end to the Atlantic hurricane season last week, the NHC is giving 60% odds of a new system developing in the Caribbean this week. Early forecasts suggest that it’s unlikely this storm will develop into a threat for the US, but it could add moisture to a cold front heading towards the East Coast at the end of the week.
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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.