Don't Call It A Comeback?
Don’t call it a comeback?
WTI rallied 24 percent Thursday, it’s largest daily percentage increase on record, although percentages don’t mean nearly as much when the outright values started at 18 year lows. Diesel futures also had a big day, rallying more than a dime at their highs and taking back most of Wednesday’s heavy losses.
If the current gains can hold today, it would mark the first consecutive increases for both energy and equity markets in a month, but right now they appear to be on shaky ground as the majority of the overnight gains in both asset classes have already been erased.
Refinery reactions to the virus and its economic fallout are starting to be announced this week.
The largest refinery on the West Coast is reducing production due to the drop off in demand, along with a handful of other plants nationwide, while numerous others are delaying maintenance and sending home contract employees to help limit the spread of the virus.
Pipelines are also adjusting schedules to meet the rapidly changing fundamental situation, and Colonial pipeline (the largest products line in the world) announcing it would temporarily reduce flow rates by 20 percent due to the drop in demand.
Rumors continue to swirl that the EPA will soon grant emergency waivers to aid the spring gasoline RVP transition, but no official word has been released yet. With numerous stimulus, bailout, and other packages being put together to try and help businesses weather the storm, it’s a safe bet that there are more changes coming to regulations in the energy arena.
Two other big rumors making the rounds: The White House may attempt to intervene in the lose-money contest between Saudi Arabia and Russia, while Texas is considering the very un-Texan move of forcing a temporary reduction in the state’s oil production.
The forward curve charts below show both how fast the landscape has changed over the past month, and how valuable storage options are becoming, as weak demand sparks the first return of “super contango” since 2009.
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.