Energy And Equity Prices See Strong Gains In Early Trading
It’s a Risk On Wednesday as energy and equity prices are both seeing strong gains in early trading with optimism for life after Coronavirus taking some hold.
The API estimated that U.S. gasoline stocks dropped by 1.1 million barrels last week, while crude oil built by just under 10 million barrels and diesel stocks increased by 4.5 million barrels. The DOE’s weekly report is due out at its regular time.
The drop in gasoline stocks is the latest in a series of signs over the past week that domestic gasoline consumption is picking up. While demand remains far from where it usually is this time of year, it's a positive change that helps alleviate storage concerns for now. Gasoline cash markets are also reflecting this optimism with continued buying across several regions this week, pushing differentials up by 40 cents or more in some markets since bottoming out earlier in April.
May futures for RBOB and HO expire tomorrow, and are already seeing much lighter volumes than normal, so don’t be surprised to see some wild swings as those contracts go off the board. The super-contango across energy contracts means that June RBOB should open up near the $0.77 range that held resistance for several days earlier this month. This should provide a good near-term test of the staying power of this recent rally.
The FOMC is wrapping up a two day policy meeting today, and will be making an announcement this afternoon. With the FED already pulling out all the stops, including buying up more than $2.5 trillion worth of various assets and slashing interest rates to essentially zero, no one seems to be betting on an interest rate change from this meeting. In fact, according to the CME’s Fedwatch tool, traders aren’t expecting any change in interest rates for at least a year.
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.