Energy And Equity Futures Are Moving Higher To Start Wednesday’s Session
Energy and equity futures are moving higher to start Wednesday’s session, with volumes dwindling ahead of the holidays and year end.
ULSD prices are leading the way this morning, and are up 15 cents since bottoming out just below the $3 mark Tuesday, which in ordinary years would be a big move, but in 2022 it’s actually below average for a 2-day price swing. The $2.80-$3.30 range established last week needs to be broken near term before diesel prices can find a trend, and any movement inside of that range is probably just noise. If you’re looking for cheap diesel, head to the Chicago region as prompt prices there have plummeted 60 cents below futures as the winter demand doldrums set in, and few options remain to move product out of the area as December trading grinds to a halt.
The move higher in product futures so far seems to be shrugging off the API reporting more inventory builds last week with gasoline stocks adding 4.5 million barrels and distillates adding 830,000. That doesn’t stop headline writers from crediting today’s rally on a decline in crude oil stocks of 3 million barrels, and it’s hard to blame them given the lack of news this week.
Speaking of which, the EIA is in its end of year hibernation period, and is republishing articles for its “Today in Energy” segment. Today’s note highlighted that gasoline demand increased in 2021 and wins the captain obvious award of the week. The agency is still scheduled to publish its weekly stats at its normal time this morning.
P66 has reportedly sold its terminal formerly known as the Alliance refinery that has been shuttered since being knocked offline by Hurricane Ida in 2021. The sale seems to cement the idea that the plant will never again operate as a refinery given the buyer’s status as a pipeline and terminal operator.
Temperatures in the refining hubs stretching from Corpus Christi to New Orleans, which account for more than half of the total US refining capacity, are expected to drop well below freezing Thursday night, with gale warnings also in place for the region. That combination of cold and wind will no doubt lead to some power outages, so the chance of operational disruptions is real, and it wouldn’t be surprising to see some plants initiate a planned shut down today to avoid an unplanned one tomorrow. We probably won’t know until Friday or Saturday if there is any meaningful production outages as a result, and since the market is closed Monday, we may not see a price reaction – if there is one – until Tuesday.
The threat of cyber-attacks on energy infrastructure have become an afterthought recently, but reports this morning suggest Russian hackers attempted to compromise a “large petroleum company within a NATO member nation” in August. While the reports are sketchy at best at this point, the come on the heels of warnings from Norway and other countries of the vulnerabilities to energy infrastructure, and it’s worth remembering that it was less than 2 years ago that Russian hackers knocked the Colonial pipeline offline. Meanwhile, Russia is having refinery problems of their own with multiple fires reported at facilities in Siberia in the past week, sparking rumors of sabotage.
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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.