Daily Coronavirus Market Teeter-Totter
After trading lower for most of Tuesday’s session, energy futures staged a strong rally in the last 15 minutes of trading before settlement and that upward momentum has carried through to this morning, in spite of inventory builds in crude and gasoline last week. In the daily coronavirus market teeter-totter, longer term vaccine optimism is winning over short term shutdown concerns today after another positive finding on Pfizer’s experimental drug.
The API reported a large build in crude stocks of 4.1 million barrels last week, while gasoline stocks increased slightly by 256,000 barrels. Distillates meanwhile had a large decrease of five million barrels on the week, consistent with the evidence we’re seeing in numerous markets in the Midwest, Rockies and South West that diesel supplies have suddenly become tight.
This situation feels similar to what we saw with the first round of shutdowns in the spring where gasoline demand reacted faster, and distillates were strong for another month or so, but then gasoline consumption recovered much faster. The DOE’s weekly report is due out at its normal time this morning, but it will likely take another week or two for the impact of the latest closures to show up in the nationwide data.
Another COVID refinery casualty? BP filed notice with Illinois and Chicago officials of possible layoffs exceeding the reporting threshold of 250 salaried employees. It’s unclear at this point if these layoffs might impact the office operations in Chicago or Naperville, IL, or if they could mean that some unit(s) could be closed at the Whiting, IN refinery, the largest production facility in PADD 2, and the sixth largest in the country.
Not done yet? After hurricane Iota became the second major hurricane pound central America in two weeks, the NHC is tracking two more potential storm systems today. The good news is both systems are given low (20%) odds of developing in the next five days. The bad news is several hurricanes in the parade of storms that ended up hitting the U.S. already this year started in similar fashion, so we’ll be stuck watching weather right through the end of the official hurricane season November 30 and probably beyond.
This hurricane season set records for the number of storms to form in the Atlantic basin, and the number of storms to hit the U.S. Coast. The EIA this morning highlighted the impact on Gulf of Mexico oil production, which dropped by the most in 12 years due to these storms. Numerous refineries were also shut down, some more than once, due to the parade of storms, and yet prices barely flinched due to the weak demand situation.
Click here to download a PDF of today's TACenergy Market Talk.
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Energy Prices Fluctuate: Chinese Imports Surge, Saudi Arabia Cuts Output and Buys Golf
Energy prices continue their back-and-forth trading, starting Wednesday’s session with modest gains, after a round of selling Tuesday wiped out the Saudi output cut bounce.
A surge in China’s imports of crude oil and natural gas seem to be the catalyst for the early move higher, even though weak export activity from the world’s largest fuel buyer suggests the global economy is still struggling.
New tactic? Saudi Arabia’s plan to voluntarily cut oil production by another 1 million barrels/day failed to sustain a rally in oil prices to start the week, so they bought the PGA tour.
The EIA’s monthly Short Term Energy Outlook raised its price forecast for oil, citing the Saudi cuts, and OPEC’s commitment to extend current production restrictions through 2024. The increase in prices comes despite reducing the forecast for US fuel consumption, as GDP growth projections continue to decline from previous estimates.
The report included a special article on diesel consumption, and its changing relationship with economic activity that does a good job of explaining why diesel prices are $2/gallon cheaper today than they were a year ago.
The API reported healthy builds in refined product inventories last week, with distillates up 4.5 million barrels while gasoline stocks were up 2.4 million barrels in the wake of Memorial Day. Crude inventories declined by 1.7 million barrels on the week. The DOE’s weekly report is due out at its normal time this morning.
We’re still waiting on the EPA’s final ruling on the Renewable Fuel Standard for the next few years, which is due a week from today, but another Reuters article suggests that eRINs will not be included in this round of making up the rules.
Click here to download a PDF of today's TACenergy Market Talk.
Week 23 - US DOE Inventory Recap
Energy Prices Retreat, Global Demand Concerns Loom
So much for that rally. Energy prices have given back all of the gains made following Saudi Arabia’s announcement that it would voluntarily withhold another 1 million barrels/day of oil production starting in July. The pullback appears to be rooted in the ongoing concerns over global demand after a soft PMI report for May while markets start to focus on what the FED will do at its FOMC meeting next week.
The lack of follow through to the upside leaves petroleum futures stuck in neutral technical territory, and since the top end of the recent trading range didn’t break, it seems likely we could see another test of the lower end of the range in the near future.
RIN prices have dropped sharply in the past few sessions, with traders apparently not waiting on the EPA’s final RFS ruling – due in a week – to liquidate positions. D6 values dropped to their lowest levels in a year Monday, while D4 values hit a 15-month low. In unrelated news, the DOE’s attempt to turn seaweed into biofuels has run into a whale problem.
Valero reported a process leak at its Three Rivers TX refinery that lasted a fully 24 hours. That’s the latest in a string of upsets for south Texas refineries over the past month that have kept supplies from San Antonio, Austin and DFW tighter than normal. Citgo Corpus Christi also reported an upset over the weekend at a sulfur recovery unit. Several Corpus facilities have been reporting issues since widespread power outages knocked all of the local plants offline last month.
Meanwhile, the Marathon Galveston Bay (FKA Texas City) refinery had another issue over the weekend as an oil movement line was found to be leaking underground but does not appear to have impacted refining operations at the facility. Gulf Coast traders don’t seem concerned by any of the latest refinery issues, with basis values holding steady to start the week.
Click here to download a PDF of today's TACenergy Market Talk.