Colonial Pipeline Forced To Shut Its Main Gasoline Line
Gasoline futures rallied nearly a nickel overnight after reports that Colonial Pipeline was forced to shut its main gasoline line due to a product spill near Huntersville, North Carolina, a suburb of Charlotte. It’s not yet clear what caused the spill, or how long repairs will take, although reports suggest the issue will take multiple days to resolve. RBOB futures have since pulled back to gains of less than a penny, as it seems the excess inventory and reduced demand are acting as a buffer to prices – unlike the last time Colonial was forced to shut line 1 back in 2016.
If repairs take more than a few days however, expect immediate shortages of product all along the south-eastern U.S. and mid-Atlantic states, as there simply is no way to efficiently replace deliveries from the largest pipeline system in the country. The longer the shutdown lasts, expect to see more downward pressure on USGC gasoline basis values, as pipeline buyers will not be able to ship products, forcing sellers to reduce offers to find a new home.
Meanwhile, West Coast gasoline basis values rallied to their highest levels in three-months last week following reports of unplanned refinery issues. While the rally has pushed West Coast values to their comfortable position as the most expensive in the country, the premiums are fairly pedestrian compared to what we’ve seen in previous years, thanks again to the buffer effect of ample supply and reduced demand.
Baker Hughes reported four more oil rigs were taken out of service last week, bringing the combined U.S. oil and gas drilling rig count to a fresh record low for the 33+ years they’ve been publishing this data. Once again, it was the Permian basin that accounted for the entire reduction, although this week the reduction came from the Texas side of the basin, while last week New Mexico had the drop.
Ethanol prices surged last week as damage assessments from the major Derecho storm that went largely unreported (it’s not a hurricane after all, even if it did have 100 mph winds) estimate that more than 37 million acres of crops were negatively impacted. Despite the sharp rally, ethanol prices remain some 25 cents below their early July peak, as overall inventory levels seem to be ample given depressed demand. Are you noticing a theme today?
Perhaps that explains why money managers continue to only make minor moves in their wagers on petroleum products as the market simply feels sluggish, taking some of the perception of reward out of the risk/reward equation. Large funds made small reductions in their WTI holdings last week, while making small increases on bets in RBOB, HO and Brent.
Click here to download a PDF of today's TACenergy Market Talk.
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Gasoline Futures Are Leading The Energy Complex Higher This Morning With 1.5% Gains So Far In Pre-Market Trading
Gasoline futures are leading the energy complex higher this morning with 1.5% gains so far in pre-market trading. Heating oil futures are following close behind, exchanging hands 4.5 cents higher than Friday’s settlement (↑1.3%) while American and European crude oil futures trade modestly higher in sympathy.
The world’s largest oil cartel is scheduled to meet this Wednesday but is unlikely they will alter their supply cuts regimen. The months-long rally in oil prices, however, has some thinking Saudi Arabia might being to ease their incremental, voluntary supply cuts.
Tropical storm Rina has dissolved over the weekend, leaving the relatively tenured Philippe the sole point of focus in the Atlantic storm basin. While he is expected to strengthen into a hurricane by the end of this week, most projections keep Philippe out to sea, with a non-zero percent chance he makes landfall in Nova Scotia or Maine.
Unsurprisingly the CFTC reported a 6.8% increase in money manager net positions in WTI futures last week as speculative bettors piled on their bullish bets. While $100 oil is being shoutedfromeveryrooftop, we’ve yet to see that conviction on the charts: open interest on WTI futures is far below that of the last ~7 years.
Click here to download a PDF of today's TACenergy Market Talk.
The 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.