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.
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View AllThe Energy Bulls Are On The Run This Morning, Lead By Heating And Crude Oil Futures
The energy bulls are on the run this morning, lead by heating and crude oil futures. The November HO contract is trading ~7.5 cents per gallon (2.3%) higher while WTI is bumped $1.24 per barrel (1.3%) so far in pre-market trading. Their gasoline counterpart is rallying in sympathy with .3% gains to start the day.
The October contracts for both RBOB and HO expire today, and while trading action looks to be pretty tame so far, it isn’t a rare occurrence to see some big price swings on expiring contracts as traders look to close their positions. It should be noted that the only physical market pricing still pricing their product off of October futures, while the rest of the nation already switched to the November contract over the last week or so.
We’ve now got two named storms in the Atlantic, Philippe and Rina, but both aren’t expected to develop into major storms. While most models show both storms staying out to sea, the European model for weather forecasting shows there is a possibility that Philippe gets close enough to the Northeast to bring rain to the area, but not much else.
The term “$100 oil” is starting to pop up in headlines more and more mostly because WTI settled above the $90 level back on Tuesday, but partially because it’s a nice round number that’s easy to yell in debates or hear about from your father-in-law on the golf course. While the prospect of sustained high energy prices could be harmful to the economy, its important to note that the current short supply environment is voluntary. The spigot could be turned back on at any point, which could topple oil prices in short order.
Click here to download a PDF of today's TACenergy Market Talk.
Gasoline And Crude Oil Futures Are All Trading Between .5% And .8% Lower To Start The Day
The energy complex is sagging this morning with the exception of the distillate benchmark as the prompt month trading higher by about a penny. Gasoline and crude oil futures are all trading between .5% and .8% lower to start the day, pulling back after WTI traded above $95 briefly in the overnight session.
There isn’t much in the way of news this morning with most still citing the expectation for tight global supply, inflation and interest rates, and production cuts by OPEC+.
As reported by the Department of Energy yesterday, refinery runs dropped in all PADDs, except for PADD 3, as we plug along into the fall turnaround season. Crude oil inventories drew down last week, despite lower runs and exports, and increased imports, likely due to the crude oil “adjustment” the EIA uses to reconcile any missing barrels from their calculated estimates.
Diesel remains tight in the US, particularly in PADD 5 (West Coast + Nevada, Arizona) but stockpiles are climbing back towards their 5-year seasonal range. It unsurprising to see a spike in ULSD imports to the region since both Los Angeles and San Francisco spot markets are trading at 50+ cent premiums to the NYMEX. We’ve yet to see such relief on the gasoline side of the barrel, and we likely won’t until the market switches to a higher RVP.