Bulls Back In The Driver’s Seat
The bulls are back in the driver’s seat this week, and are threatening a test of multi-year highs for energy contracts.
Brent crude briefly traded above $70 overnight, for the first time since an attack on Saudi oil facilities in early March briefly stirred up the futures market. This time, it appears to be demand optimism rather than supply fears driving the action, although the inflation trade seems to be alive and well, and could keep buyers interesting in commodities of all varieties. Dangerous storm systems are sweeping through refinery country this week, bringing flooding, tornadoes and power outages to the region and causing several refiners to have to restart units.
The supply situation is getting better daily across the southeastern U.S. as Colonial’s restart is progressing well, although some spot outages remain and will likely continue for a few more days.
While the supply crunch is quickly being put to rest, the race to not let this crisis go to waste is just heating up. Already the TX governor announced he was signing a law to force local governments to keep up with cybersecurity training, while others are realizing that the multi-trillion dollar spending plans to boost infrastructure should probably at least contemplate the use of pipelines.
Although gasoline futures have not yet breached new highs for the year, an EIA report this morning notes that average retail prices across the U.S. have moved north of $3.00/gallon this week for the first time since the price crash of 2014. While the Colonial pipeline shutdown played a large part in the most recent retail run-up, prices had already doubled prior to that event as the country started reopening, and there were fewer refineries operating to meet that increase in demand.
Meanwhile, the product pipeline that runs from El Paso to Phoenix was forced to shut for a day to investigate an issue following a power outage. That line was restarted Monday afternoon, alleviating concerns of shortages in Arizona and excess supply needing to find a home in West Texas.
Today’s interesting read: Why the great global restart is leaving supply chains short on just about everything.
Today’s less interesting read: the IEA released its “roadmap” for the global energy system to reach net zero carbon emissions by 2050. The plan says investment must stop for new oil and gas projects immediately in order to meet climate goals. Good luck with that. A note from the Financial Times offers an insight into how challenging the climate transformation is, and why business pledges to reduce emissions are easier said than done.
Click here to download a PDF of today's TACenergy Market Talk.
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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.