Calm Between Storms For Energy Markets
The calm between storms has set in on energy markets to start Friday’s trading with only fractional moves so far, after a week of mostly heavy selling. The dark cloud of rapidly rising COVID counts continues to hang over markets around the globe, while next week’s election is expected to create even more volatility.
November RBOB and HO contracts expire today, so watch the December contracts (RBZ/HOZ) for price direction today. RBOB futures reached their lowest levels since May during Thursday’s selloff, but held support just above the $1 mark, holding off a technical collapse for now. WTI and ULSD finally found a bid just a few ticks above their June lows meaning the sideways pattern is still hanging on by a thread. If the range finally breaks down, it looks like we’ll see another 10-20 cent drop for products in short order.
Gulf Coast gasoline prices joined the Group 3 market in the under $1 club Thursday. Chicago and NYH prices are just about a nickel away, while West Coast values still have more than a dime to fall before reaching that level. Ethanol prices saw their bubble burst as both corn and gasoline prices have plummeted this week. The upward momentum in RIN values also appears to have stalled out temporarily, with the weaker commodity values and the announcement that there will be one less obligated refinery requiring RINs next year managing to push both D4 and D6 prices back down from multi-year highs.
Big Oil earnings reports for Q3 being released this week are shedding more light on the challenging environment that’s forcing more job cuts, even with oil prices trading north of $40 for most of the quarter. Q4 is looking even worse with the drop in prices the past couple of weeks, and demand forecasts continuing to decline. While most OPEC members don’t release earnings reports like public corporations due, it’s fairly easy to extrapolate that they’re facing similar challenges, which makes the need to extend production cuts clear, although the will to do so from some members is less so.
The parade of hurricanes in the Gulf Coast isn’t helping oil producers as several noted in their earnings reports the reduced output and additional costs of having to shut in and restart production (not to mention shuttling employees to and from the rigs) have happened at the worst possible time.
As the Atlantic Coast dries out from the remnants of Hurricane Zeta today, the NHC is already giving a high probability of another named storm forming over the weekend. The disturbance has 80% odds of becoming the next named storm as it moves into the Caribbean over the next five days, but so far the NHC isn’t publishing a potential path for after it develops. This is close to where both hurricanes Delta and Zeta formed, so another hit to the Gulf Coast is still possible even as we move into the last few weeks of the season.
Another one bites the dust: BP announced it would shut Australia’s largest refinery, converting it to an import terminal, as operating the plant was no longer “economically viable." At 150mb/day, the plant is not large by U.S. refining standards, and won’t be missed in the current environment, but is the latest in a long string of rationalizations globally that’s expected to continue as long as demand is weak.
Click here to download a PDF of today's TACenergy Market Talk.
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Energy Prices Fluctuate: Chinese Imports Surge, Saudi Arabia Cuts Output and Buys Golf
Energy prices continue their back-and-forth trading, starting Wednesday’s session with modest gains, after a round of selling Tuesday wiped out the Saudi output cut bounce.
A surge in China’s imports of crude oil and natural gas seem to be the catalyst for the early move higher, even though weak export activity from the world’s largest fuel buyer suggests the global economy is still struggling.
New tactic? Saudi Arabia’s plan to voluntarily cut oil production by another 1 million barrels/day failed to sustain a rally in oil prices to start the week, so they bought the PGA tour.
The EIA’s monthly Short Term Energy Outlook raised its price forecast for oil, citing the Saudi cuts, and OPEC’s commitment to extend current production restrictions through 2024. The increase in prices comes despite reducing the forecast for US fuel consumption, as GDP growth projections continue to decline from previous estimates.
The report included a special article on diesel consumption, and its changing relationship with economic activity that does a good job of explaining why diesel prices are $2/gallon cheaper today than they were a year ago.
The API reported healthy builds in refined product inventories last week, with distillates up 4.5 million barrels while gasoline stocks were up 2.4 million barrels in the wake of Memorial Day. Crude inventories declined by 1.7 million barrels on the week. The DOE’s weekly report is due out at its normal time this morning.
We’re still waiting on the EPA’s final ruling on the Renewable Fuel Standard for the next few years, which is due a week from today, but another Reuters article suggests that eRINs will not be included in this round of making up the rules.
Click here to download a PDF of today's TACenergy Market Talk.
Week 23 - US DOE Inventory Recap
Energy Prices Retreat, Global Demand Concerns Loom
So much for that rally. Energy prices have given back all of the gains made following Saudi Arabia’s announcement that it would voluntarily withhold another 1 million barrels/day of oil production starting in July. The pullback appears to be rooted in the ongoing concerns over global demand after a soft PMI report for May while markets start to focus on what the FED will do at its FOMC meeting next week.
The lack of follow through to the upside leaves petroleum futures stuck in neutral technical territory, and since the top end of the recent trading range didn’t break, it seems likely we could see another test of the lower end of the range in the near future.
RIN prices have dropped sharply in the past few sessions, with traders apparently not waiting on the EPA’s final RFS ruling – due in a week – to liquidate positions. D6 values dropped to their lowest levels in a year Monday, while D4 values hit a 15-month low. In unrelated news, the DOE’s attempt to turn seaweed into biofuels has run into a whale problem.
Valero reported a process leak at its Three Rivers TX refinery that lasted a fully 24 hours. That’s the latest in a string of upsets for south Texas refineries over the past month that have kept supplies from San Antonio, Austin and DFW tighter than normal. Citgo Corpus Christi also reported an upset over the weekend at a sulfur recovery unit. Several Corpus facilities have been reporting issues since widespread power outages knocked all of the local plants offline last month.
Meanwhile, the Marathon Galveston Bay (FKA Texas City) refinery had another issue over the weekend as an oil movement line was found to be leaking underground but does not appear to have impacted refining operations at the facility. Gulf Coast traders don’t seem concerned by any of the latest refinery issues, with basis values holding steady to start the week.
Click here to download a PDF of today's TACenergy Market Talk.