Coronavirus Fallout Continues
Another day, another 20 cent drop for gasoline prices as the highly unusual becomes commonplace while the world deals with the coronavirus fallout.
Fear is ruling the trading day after an optimistic Friday finish, and in spite of the Fed announcing a 100 point cut in interest rates, along with other liquidity injections, some coordinated with other central banks, and assurances from the government that they would be taking action to limit the economic harm done by the attempts to limit the outbreak.
RBOB gasoline futures reached an all-time low (the contract started trading in 2005) overnight, trading at $.6778/gallon, nearly 11 cents below the previous low record set in the panic of 2008.
While the panic continues in futures markets, the physical reality is much different with numerous regional markets around the US facing tight supplies as a combination of heavy refinery maintenance, RVP transition, and in some cases a spike in demand as people prepare to self-quarantine. The concern remains that the short term shortage will turn to long-term excess if drivers stay off the road in the coming weeks.
So far the fear has been primarily focused on demand, but after a worker at the largest refinery on the West Coast tested positive for the disease, doubts about supply reliability cannot be ignored. A Reuters article highlights the steps being taken by major oil companies to continue operating through the crisis.
Money managers seem to be taking the energy price meltdown in stride, with relatively minor changes witnessed in ULSD, RBOB and WTI contracts last week, while Brent saw some heavier liquidation.
Baker Hughes reported an increase of one oil rig working in the U.S. last week. While the decision to put that rig to work was likely made months ago, it does look particularly optimistic at this point.
Click here to download a PDF of today's TACenergy Market Talk.
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Energy 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.