Energy Bulls Pass Big Test With Flying Colors
The energy bulls passed their first big test in 3 months with flying colors this week, bouncing off of trend support early Thursday morning, then extending those gains later in the day following a bullish report from the DOE, and keeping that momentum going this morning. Big draws in oil and gasoline inventories, and an all-time record for gasoline demand estimates, highlighted the DOE’s weekly report, and sent prices on an immediate rally that was able to sustain through the afternoon and the overnight session.
The EIA’s total petroleum “demand” estimate surpassed 21 million barrels/day last week, a new high since the start of the pandemic, and higher than we were at this point in 2019. That surge was led by a 10% spike in gasoline demand, which reached its highest weekly level in 30 years of data provided from the DOE. While the 4-week average (which is deemed much more reliable than the weekly number) is still trailing pre-pandemic levels, that spike north of 10 million barrels/day (the first time that’s ever happened) is a signal that US consumers are ready to move. We are likely to see a dose of reality next week as the post-holiday hangover has hit demand across the country, and the rain Elsa is dumping along the east coast likely is keeping cars off the road this week. Diesel demand estimates slipped on the week, but remain above both their 5 year average and 2019 levels for this time of year.
Refiners look to be up to the challenge of surging demand, raising gasoline output north of 10.5 million barrels/day for just a 3rd time ever, even though total run rates remain well below where we’d expect them this time of year, and 5% of capacity going away permanently over the past year. That said, as the wide spread in rack prices across the country shows, just because refiners can produce enough fuel in total to continue outpacing US consumption, that doesn’t mean the pipeline network is equipped to get that fuel where it needs to be, particularly in the Western half of the country.
US Oil production did rise to 11.3 million barrels/day, another post-pandemic high. A WSJ article today suggests that American frackers are showing restraint with prices near 6 year highs, choosing to pay off debts rather than plow money into more drilling. While that sounds interesting, for an industry that does not do moderation, it seems like the supply-chain shortages being dealt with in so many industries may be a bigger factor. It will be interesting to see if we get a few more months of prices in the $70s, if the group long known as wildcatters will still be restrained.
If you need some weekend reading material (or are having trouble sleeping) check out BP’s annual world energy statistical review. The report highlights the record setting extremes we witnessed in 2020, details the progress the world is making on renewable energy sources, and notes why those efforts still fall far short of what would be needed to become carbon neutral.
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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.