Concerns Over Refinery Issues Seemed To Be The Major Theme That Sparked The Rush Of Panic Buying Friday
Energy prices are coming back to reality this morning after a runaway Friday rally got a bit out of control. ULSD futures led the way in both directions, adding 15 cents Friday to hit a new 7 month high at $3.3355, before pulling back by 7 cents this morning as cooler heads seem to be prevailing. Despite that pullback, the strong finish last week keeps the door open for a rally towards the 2023 high of $3.58 as long as prices can sustain their move north of $3.20 this week.
Concerns over refinery issues seemed to be the major theme that sparked the rush of panic buying Friday, although the forecast of a Hurricane reaching the Gulf of Mexico probably didn’t hurt even though it’s not a threat to most energy infrastructure.
The big story was a tank fire at Marathon’s 596mb/day plant in Garyville LA, which is the 3rd largest refinery in the country. Even though the fire was in a storage tank, and not an operating unit, the reports that operations were temporarily suspended as a precaution created a flurry of buying activity just before the settlement Friday. Terminal operations at the plant resumed Friday evening which suggests the fire will not have a lasting impact on operations, which goes a long way to explain the pullback in prices this morning.
Meanwhile, two of the TCEQ frequent flyers both reported upsets Friday. The Valero Mckee refinery reported flaring after a power loss Friday afternoon, which occurred as the facility was attempting to finalize repairs after an upset earlier this month. Marathon’s Galveston Bay facility continues to struggle to go even 1 week without some sort of mishap, this time reporting a fuel oil leak inside a containment dike. Exxon reported an upset at an FCC unit in its Beaumont TX facility overnight that caused brief flaring, but no reported unit shutdowns.
While the headlines were focused on Gulf Coast activities, the biggest price moves Friday were on the West Coast. Both LA and SF diesel basis saw big increases that pushed differentials and outright prices to their highest levels of the year even though the other US spot markets shrugged off the refinery news.
Tropical Storm Idalia formed off the Yucatan peninsula over the weekend and is expected to become a major hurricane before making landfall near Florida’s big bend early Wednesday morning. The storm is far enough east as it moves quickly through the Gulf of Mexico that it’s not a major threat to oil production and refining assets, although we can expect precautionary shutdowns of some offshore wells the next 2 days.
Unlike last year’s Hurricane Ian, which spared the Tampa Bay area with a late shift in its path, this storm looks like it will keep Tampa on the eastern side meaning it will be pushing water inland which could be trouble for the terminals around the bay which are right on the water’s edge. Unfortunately, another type of storm at a local terminal has complicated efforts to fill up customer tanks ahead of this system.
Hurricane Franklin has reached Major hurricane status this morning but is staying roughly 500 miles off of the East Coast as it makes its way north and does not appear to be a direct threat to land, although its high winds and waves could cause some challenges for vessels in the area. There’s another storm system given 50% odds of developing this week by the NHC off the West Coast of Africa, but it looks like it will be far enough north that it should stay out to sea.
Money managers reduced their speculative length (bets on higher prices) on most energy contracts last week with WTI, Brent, RBOB and Gasoil contracts all seeing declines. ULSD prices were the exception with new length added and old shorts reduced, pushing net length up by 17% on the week to a 22-month high. Open interest in refined products continues to increase with ULSD positions now at their highest level in 18-months.
Baker Hughes reported another large decline in the US drilling rig count with a net decrease of 8 oil rigs and 2 natural gas rigs last week. That decline brings the total count to a fresh 18 month low.
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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.