Chinese Power Shortage Partially Blamed For Refinery Output Dropping
There’s a saying that market-based prices don’t go straight up, but if you just looked at the chart of energy prices over the past several weeks, you might think otherwise. The steady march higher continues this morning as the world remains without a short term solution to the energy supply crunch, and the big 3 NYMEX contracts all reached fresh 7 year highs again overnight, with refined products up 45 cents in the past month, and more than $2/gallon over the past 18 months.
While the bulls clearly have control of this market for a time being, there’s also a saying that energy prices like to take the stairs up and the elevator down, so it would not be surprising to see a big price drop when the upward momentum finally wanes.
(Not) adding fuel to the fire: The Chinese power shortage was partially blamed for refinery output dropping to a 15 month low, showing how a lack of one fuel can lead to less production of another. It’s not a completely fair comparison because the country’s quota system on oil imports is also playing a big role, but it is indicative of the challenges faced in the near term as the world tries to get back to normal.
It’s not just fossil fuels that are seeing big rallies. Ethanol prices have been surging alongside gasoline, with spot prices in the New York harbor surpassing the $3 mark last week. Note the unusually large spread between Chicago and New York ethanol prices in the chart below as a sign of the ongoing logistical challenges for delivering fuel via rail and truck around the country.
Not buying it? It wasn’t too surprising to see money managers continue jumping on the petroleum bandwagon last week, adding to their net length in WTI and ULSD contracts. Brent crude meanwhile saw a 9% decrease in the bets on higher prices held by large speculators, which suggests that some of the big money bettors think this rally is getting a overextended. RBOB contracts saw a small reduction as new shorts were added, which seasonally looks like a solid bet as gasoline demand is heading towards the winter doldrums.
Baker Hughes reported 12 more oil rigs were put to work last week, the largest weekly increase in 6 months, as the race to increase production at these lofty levels accelerates. Half of the additional rigs put to work last week were in the “other” basin category, suggesting that smaller operators are outpacing the bigger operators in the major US shale plays.
Today’s interesting read: This WSJ article taking a deeper look at the energy supply crunch and the impacts on both fossil fuels and renewables.
Click here to download a PDF of today's TACenergy Market Talk.
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Week 48 - US DOE Inventory Recap
The API Reported Gasoline Inventories Dropped By 898,000 Barrels Last Week
Gasoline and oil prices are attempting to rally for a 2nd straight day, a day ahead of the delayed OPEC meeting, while diesel prices are slipping back into the red following Tuesday’s strong showing.
The API reported gasoline inventories dropped by 898,000 barrels last week, crude inventories declined by 817,000 barrels while distillates saw an increase of 2.8 million barrels. Those inventory stats help explain the early increases for RBOB and WTI while ULSD is trading lower. The DOE’s weekly report is due out at its normal time this morning.
A severe storm on the Black Sea is disrupting roughly 2% of the world’s daily oil output and is getting some credit for the bounce in futures, although early reports suggest that this will be a short-lived event.
Chevron reported that its Richmond CA refinery was back online after a power outage Monday night. San Francisco spot diesel basis values rallied more than a dime Tuesday after a big drop on Monday following the news of that refinery being knocked offline.
Just a few days after Scotland’s only refinery announced it would close in 2025, Exxon touted its newest refinery expansion project in the UK Tuesday, with a video detailing how it was ramping up diesel production to reduce imports and possibly allow for SAF production down the road at its Fawley facility.
Ethanol prices continue to slump this week, reaching a 2-year low despite the bounce in gasoline prices as corn values dropped to a 3-year low, and the White House appears to be delaying efforts to shift to E15 in an election year.
Click here to download a PDF of today's TACenergy Market Talk.
Values For Space On Colonial’s Main Gasoline Line Continue To Drop This Week
The petroleum complex continues to search for a price floor with relatively quiet price action this week suggesting some traders are going to wait and see what OPEC and Friends can decide on at their meeting Thursday.
Values for space on Colonial’s main gasoline line continue to drop this week, with trades below 10 cents/gallon after reaching a high north of 18-cents earlier in the month. Softer gasoline prices in New York seems to be driving the slide as the 2 regional refiners who had been down for extended maintenance both return to service. Diesel linespace values continue to hold north of 17-cents/gallon as East Coast stocks are holding at the low end of their seasonal range while Gulf Coast inventories are holding at average levels.
Reversal coming? Yesterday we saw basis values for San Francisco spot diesel plummet to the lowest levels of the year, but then overnight the Chevron refinery in Richmond was forced to shut several units due to a power outage which could cause those differentials to quickly find a bid if the supplier is forced to become a buyer to replace that output.
Money managers continued to reduce the net length held in crude oil contracts, with both Brent and WTI seeing long liquidation and new short positions added last week. Perhaps most notable from the weekly COT report data is that funds are continuing their counter-seasonal bets on higher gasoline prices. The net length held by large speculators for RBOB is now at its highest level since Labor Day, at a time of year when prices tend to drop due to seasonal demand weakness.
Click here to download a PDF of today's TACenergy Market Talk.