Energy Bulls Recharged After Tuesday's Rally Rebuffed
A strong morning rally in energy futures ran out of steam after just a few hours Tuesday, leading to a big price reversal in the first trading day of 2024. The bulls are giving it another go this morning, pushing diesel prices up more than 4 cents, while WTI is up 70 cents/barrel but RBOB futures have already lost their upward momentum and are trading in the red once again.
The big rally in equity markets seems like it’s run out of steam temporarily, which doesn’t seem to be helping energy markets in their search for direction, and more choppy back-and-forth action can be expected until we break out of the recent trading range.
The rising tensions in the Red Sea will remain a convenient excuse for any price rallies, even though physical markets seem to be adjusting fairly well so far to this latest shipping disruption. Reports suggest 2 more missiles were fired at transiting ships Tuesday, but no damage was reported. Maersk signaled it was backing off on its plans to resume transit through the area due to the latest escalations from Iran and the Houthi rebels.
The DOE’s weekly status report is delayed due to the New Year’s holiday this week and will be delayed again in 2 weeks for MLK day. The full 2024 holiday recap for the NYMEX, Banks and fuel pricing agencies is included below.
Ethanol prices continue to slide near 3 year lows as corn prices have stagnated below $5, and it looks like a long shot that the White House will offer producers another bail out in an election year. Adding insult to injury for ethanol makers: China is testing out a new coal-to-ethanol conversion facility that sounds like it only pollutes slightly more than the current process of corn-to-ethanol production.
RIN prices continue to trade near a 3 year low as well, as the rapid influx of renewable diesel keeps a lid on both D4 and D6 values.
2024 is the last year of the $1/gallon blenders tax credit for biodiesel and RD that has been the life-blood of many production facilities, along with the $2-$4/gallon in RIN and LCFS incentives needed to make those products competitive. Next year the new Clean Fuel Production Credit takes effect, which will require producers to prove the carbon emissions savings of their fuel in order to qualify for the credits. The new CFPC rule also includes prevailing wage and apprenticeship requirements (as part of the IRA law) and importers will not qualify for the credit, unlike the BTC.
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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.
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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.