Chinese Economic Data Cools Markets, Refinery Upsets Shrugged
Risk is off to start Tuesday’s session after bad import and export data from China seems to have spooked global equity and energy markets.
Chinese exports plummeted more than 14% in July (and that’s the number they want us to believe) marking the worst slowdown since the COVID lockdowns 3.5 years ago. Imports were also down more than 12%, with oil imports from the world’s largest buyer down sharply on the month, but still higher than a year ago. So far the sharp pullback hasn’t broken the up trend built over the past 6 weeks, but both RBOB and ULSD future are within just a few cents from some weekly chart support that could be the difference in this being a brief correction vs the start of a new downward trend.
Today’s selloff comes despite multiple refinery hiccups in the past couple of days, with at least 3 Gulf Coast area refineries reporting units taken offline, which once again shows that futures seem to be more driven by financials lately than fundamentals. It’s still unclear if the persistent heat wave is causing the rash of upsets, but it’s safe to bet that it’s not helping matters.
Trouble brewing in the South West? The dirty little secret known as Cleaner Burning Gasoline is starting to cause trouble again for the Phoenix market, with limited supply options for the boutique grade causing rack prices to rally once again. While we’re still a far cry from the huge spreads we saw last spring, and the current refinery hiccups are less significant than the dual turnarounds that caused those shortages, it’s likely we’ll see shippers once again shun diesel to move this gasoline grade to Phoenix, which could set the stage for the next supply squeeze.
Warbitrage: You know European natural gas stocks are well supplied when, traders are having to store it in Ukraine due to full tankage elsewhere. This is just the latest example of how most forecasts last fall calling for a dire winter of 2024 due to low gas supplies (which many feared would create another diesel shortage) seem to have got it all wrong.
Jet Fuel from ethanol? That’s the rumor, according to a Reuters report noting that ADM and P66 are discussing a JV to find new ways to turn food into fuel.
Despite a WSJ article over the weekend noting the struggle oil producers are having hiring young engineers, and the steady decline in rig counts this year, the Dallas FED’s Texas Business Outlook showed strong job growth so far this year in the oil and gas industry. Texas continued to see job growth outpace the rest of the country in most industries, thanks in large part to the continued strong net migration into the state. That report also noted how core inflation (excluding the big drop in energy prices) remains stubbornly high in the state, which is in part due to wage growth remaining well above average levels.
Click here to download a PDF of today's TACenergy Market Talk.
News & Views
View AllEnergy 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.