Early Morning Losses Turned Into Strong Afternoon Gains
After early morning losses turned into strong afternoon gains for refined products Monday, we saw another half-hearted selling attempt Tuesday as prices were down 4-5 cents overnight only to see prompt values turn positive by 7:30am.
Chaotic action in physical markets continues to be a major theme as supply shortages and big swings in price spreads keeps traders on edge. While East Coast diesel prices continue to slide down their backwardation curve, giving up 45 cents in prompt basis values over the past week, gasoline stocks are getting very tight again, driving up the spread between USGC and NYH spot markets, and pushing the premium to ship gasoline along Colonial north of 9 cents/gallon.
Just as we saw when diesel spreads spiked earlier in October, the refinery disruptions in Europe and subsequent challenges with cargo transportation of refined products are getting the blame for this latest squeeze. This would be yet another case where a Jones Act waiver would make sense to get products from the Gulf Coast where they’re made, to the East Coast where they’re needed.
The NHC is tracking 3 potential tropical systems as we approach the last official month of the hurricane season. None of these systems are given high odds of development, but the two off the US East Coast could further complicate the already disjointed waterborne delivery market for fuel over the next week, while the system in the Caribbean will need to be watched as there is still warm enough water to make for a late season Hurricane.
The head of the IEA spoke at an energy conference in Singapore this week, and highlighted several components of the world’s “first truly global energy crisis”. The speech highlighted the ways that the majority of Russian oil will continue to flow this winter despite sanctions and price caps, the chance of more coordinated SPR releases and why energy security not ESG will be the driver of the transition to renewables. Last week the agency noted that renewable production had surpassed expectations this year, which reduced the outlook for carbon emissions despite many having to return to coal power generation as other options became scarce.
Q3 earnings reports are starting to be released, and no surprise that refiners who were operating are looking at another banner quarter. Q4 is looking even better for many refiners, assuming their plants are running, as USGC 5/3/2 crack spreads have climbed back north of $1/gallon, which is approaching the record setting levels we saw in Q2.
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View AllEnergy 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.