Bulls Aren’t Giving Up Control Of This Market Just Yet
We saw a big pullback in energy prices over the past 24 hours, but a 5 cent bounce from overnight lows suggests the bulls aren’t giving up control of this market just yet.
Wednesday’s trading created an outside down pattern on the daily charts after setting a new 7 year high overnight, only to end the day with a lower low than the previous session. That type of bar is known to be a classic reversal pattern that sets up more selling at the end of a rally, and that’s exactly what we got overnight with products dropping another 5-6 cents from the settlement, which marks a decline of 12-15 cents from the highs set just 24 hours earlier.
Now the fun begins as prices have bounced nearly 6 cents off of trend line support based on the huge rally over the past 3 weeks, suggesting this selloff was more profit taking after the market was severely overbought, and not a reversal in trend. As long as we see products hold above those overnight lows ($2.25 for RBOB and $2.35 for ULSD) there’s an argument to be made that the upward trend is still alive and should favor higher prices in the weeks to come. IF that trend breaks, expect another 10 cents of downside in short order.
For what it’s worth, the big physical traders don’t appear to be buying the big run-up in futures, with basis values for gasoline in particular and diesel to a lesser degree sliding this week. Speaking of which, it’s been a bad week for spills, with a tank leak at the 2nd largest refinery in the country making for some eye popping videos, but the market shrugged it off as the oil is contained in the berm system designed for just this type of event and operations at the refinery don’t seem to be impacted. Similarly, LA-area refiners don’t appear to be facing shortfalls from the pipeline leak that’s been headline news for the past several days as prices in the market haven’t flinched. Meanwhile, Kinder Morgan’s refined products pipeline FKA Plantation remains closed until the weekend due to a spill in Alabama. Originally that line was scheduled to come back online Wednesday, but restart has been delayed until the weekend as it appears a cause of the spill is still under investigation. Allocations at terminals along the line have tightened up, and some outages are occurring, but so far the impact is relatively contained.
The EIA published its annual world energy outlook Wednesday. The highlight (or lowlight depending on your perspective) of the report was that despite the bandwagon effect of net-zero by 2050 claims, production of oil, nat gas, and even coal, is expected to continue growing for the next 30 years as emerging markets – primarily in Asia - continue to drive demand. That report is a harsh reality check for those aiming to end fossil fuel usage.
Not much exciting from yesterday’s DOE status report. Total US refinery runs did surpass 2019 levels for this time of the year, marking the first week since the start of COVID we’ve seen that. Run rates were up in 4 out of 5 PADDs for a 2nd week, as plants seem to be returning from fall maintenance and taking advantage of the unplanned downtime at 2 gulf coast plants since Ida knocked them offline.
The tropics remain quiet, with no expected storms to be named over the next 5 days according to the NHC.
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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.