Biggest Storm Threat To New Orleans Since Hurricane Katrina Emerges

Market TalkTuesday, Oct 6 2020
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Energy prices are seeing a strong rally for a second day as a major hurricane targets refining country, which could be the biggest storm threat to New Orleans since Hurricane Katrina. Hurricane Delta is the 25th named storm of the season, and will be the 10th named storm to make landfall in the U.S. in a single season, both of which are breaking records set in 2005, the year Katrina, Rita and Wilma devastated parts of the country.

RBOB gasoline futures are leading the charge higher, already up more than 10 cents so far this week, as nearly four million barrels/day of refining capacity - more than 20% of the country’s total - is in the forecast cone for this storm, and essentially all of the NOLA area refineries clustered along the Mississippi River look like they’ll be on the more dangerous east side of its path. See the table below for the refineries at risk. If RBOB can break technical resistance around $1.25 this week, there’s room on the charts for a run at the Hurricane Laura highs of $1.40. Considering we’re already in winter-RVP grades of fuel and expecting the seasonal demand slowdown however, it seems like a long shot for gas prices to sustain that type of rally.

The outlook for Delta is much more dangerous as it rapidly intensified from a disorganized storm to a hurricane yesterday, and is now expected to become a major Category 4 storm in the next couple of days with winds expected to exceed 130 mph before weakening as it approaches land on Saturday.  We’ve already seen numerous examples of forecast models underestimating the strength of these systems (including with this storm just yesterday) so don’t be surprised if it reaches Category 5 – the highest level on the scale - as it makes its way across the Gulf of Mexico. For consumers, the good news is that roughly ¼ of the refinery capacity in the path of the storm has already been shut in or is running at reduced rates, either due to COVID-related demand destruction, or the impacts of Hurricanes Laura or Sally earlier in the year, which should mean less potential impact on prices. In addition, as long as the Houston and Port Arthur hubs aren’t impacted directly, there’s less risk of any shutdowns of the major pipeline systems feeding the East Coast and mid-continent markets.

You’ll see plenty of reports that Gulf of Mexico oil rigs are being shut in ahead of this storm, but with ample inventories and sluggish demand, it’s unlikely those precautionary shut downs will have a long term impact on oil prices.

Diesel prices are lagging the run-up in gasoline prices as distillate inventories remain near record-highs while gasoline stocks have returned to normal seasonal levels. Outside of the annual harvest demand spike happening across the Midwest, the outlook for diesel demand remains sluggish with mass transit and trucking activity looking like it will take years to recover. From a technical perspective, ULSD futures are facing short term resistance at the $1.17 mark this week, and if they break through that level, look like they’ll make a run at $1.25.

Click here to download a PDF of today's TACenergy Market Talk.

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Pivotal Week For Price Action
Market TalkThursday, Feb 29 2024

It's Another Mixed Start For Energy Futures This Morning After Refined Products Saw Some Heavy Selling Wednesday

It's another mixed start for energy futures this morning after refined products saw some heavy selling Wednesday. Both gasoline and diesel prices dropped 7.5-8.5 cents yesterday despite a rather mundane inventory report. The larger-than-expected build in crude oil inventories (+4.2 million barrels) was the only headline value of note, netting WTI futures a paltry 6-cent per barrel gain on the day.

The energy markets seem to be holding their breath for this morning’s release of the Personal Consumption Expenditures (PCE) data from the Bureau of Economic Analysis (BEA). The price index is the Fed’s preferred inflation monitor and has the potential to impact how the central bank moves forward with interest rates.

Nationwide refinery runs are still below their 5-year average with utilization across all PADDs well below 90%. While PADD 3 production crossed its 5-year average, it’s important to note that measure includes the “Snovid” shutdown of 2021 and throughput is still below the previous two years with utilization at 81%.

We will have to wait until next week to see if the FCC and SRU shutdowns at Flint Hills’ Corpus Christi refinery will have a material impact on the regions refining totals. Detail on the filing can be found on the Texas Commission on Environmental Quality website.

Update: the PCE data shows a decrease in US inflation to 2.4%, increasing the likelihood of a rate cut later this year. Energy futures continue drifting, unfazed.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.

Pivotal Week For Price Action
Pivotal Week For Price Action
Market TalkWednesday, Feb 28 2024

It’s Red Across The Board For Energy Prices So Far This Morning With The ‘Big Three’ Contracts All Trading Lower To Start The Day

It’s red across the board for energy prices so far this morning with the ‘big three’ contracts (RBOB, HO, WTI) all trading lower to start the day. Headlines are pointing to the rise in crude oil inventories as the reason for this morning’s pullback, but refined product futures are leading the way lower, each trading down 1% so far, while the crude oil benchmark is only down around .3%.

The American Petroleum Institute published their national inventory figures yesterday afternoon, estimating an 8+ million-barrel build in crude oil inventory across the country. Gasoline and diesel stocks are estimated to have dropped by 3.2 and .5 million barrels last week, respectively. The official report from the Department of Energy is due out at its regular time this morning (9:30 CST).

OPEC’n’friends are rumored to be considering extending their voluntary production cuts into Q2 of this year in an effort to buoy market prices. These output reductions, reaching back to late 2022, are aimed at paring back global supply by about 2.2 million barrels per day and maintaining a price floor. On the flip side, knowledge of the suspended-yet-available production capacity and record US output is keeping a lid on prices.

How long can they keep it up? While the cartel’s de facto leader (Saudi Arabia) may be financially robust enough to sustain itself through reduced output indefinitely, that isn’t the case for other member countries. Late last year Angola announced it will be leaving OPEC, freeing itself to produce and market its oil as it wishes. This marks the fourth membership suspension over the past decade (Indonesia 2016, Qatar 2019, Ecuador 2020).

The spot price for Henry Hub natural gas hit a record low, exchanging hands for an average of $1.50 per MMBtu yesterday. A rise in production over the course of 2023 and above average temperatures this winter have pressured the benchmark to a price not seen in its 27-year history, much to Russia’s chagrin.

Click here to download a PDF of today's TACenergy Market Talk.