Black Friday Took On A New Meaning This Year
Black Friday took on a new meaning this year as markets around the world were pummeled by fears of a new COVID variant that prompted new lockdowns and travel restrictions around the world. The petroleum futures complex ended Friday with its biggest daily selloff in 19 months (you may remember April 2020 when WTI traded in negative territory) but since spot markets were closed for Thanksgiving, the 12% drop in futures didn’t carry over to physical prices in the US yet.
This morning we’re seeing a sigh of relief rally in both energy futures and equity markets as the drug makers signal confidence that Omnicron can be dealt with in a relatively short time frame, although only about 1/3 of Friday’s losses have been erased so far, suggesting the market still has major concerns.
From a technical perspective, we’ve been saying for some time that refined product charts looked like they could get a 20-30 cent sell-off, we just didn’t expect to see it happen in a single day. Now that the big flush lower is in the rearview mirror and an 11 cent bounce has already happened, we’re set up with a new range to determine the direction of our next trend. If Friday’s lows get taken out ($2.02 for RBOB and $2.09 for ULSD) there’s a good chance we see another 20 cent drop. On the upside, we’ll need to see the previous support around the $2.18 range for RBOB and $2.26 for ULSD be surpassed to get the charts to a more neutral footing heading towards year end.
The CFTC’s weekly report on NYMEX positions was delayed due to the holiday and won’t be released until this afternoon, but Brent and Gasoil contracts both saw heavy liquidation by money managers, suggesting the big funds may have already been heading for the exits well before things got exciting last week. Keep in mind that the data released today will be as of Tuesday Nov 23, so we won’t see how traders weathered Friday’s storm until the end of this week.
In less exciting news, the attempt to put a Cap & Trade program on transportation fuels across New England seems to have failed as the governors of Massachusetts and Connecticut both signaled they would no longer support the plan known as TCI in the face of already high gasoline prices (and an election year).
Unplanned refinery downtime continues to create many challenges for regional supply networks with the refinery in Toledo OH reportedly needing months to make repairs after an explosion and fire last week, while the flooding that swept across the Pacific North West forced a plant in BC to shutter until crude supplies can be restored. Last week’s DOE report showed that many plants are returning after a busy fall maintenance schedule, which should help limit the impact of these latest disruptions.
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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.
Click here to download a PDF of today's TACenergy Market Talk.
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.