Energy Complex Moving Higher
The energy complex is moving higher today after a couple of bearish DOE figures failed to provoke across-the-board buying yesterday. Gasoline futures sighed a 40 point loss on Thursday while a little more came out of the diesel prompt month contract at about -2 ¼ cents.
Diesel stocks continued lower and while that is expected this time of year, the days of forward cover chart, a look at our supplies + production vs demand, has hit a 5-year seasonal low and has reached levels not seen since 2008 and one time in early 2014. It could be that traders are banking on the restarts in Midwest refineries to save the day, last week saw a 7% production boost in PADD 2 throughput rates as the regions refineries are brought back from fall turnaround.
Ironically crude oil was the only of the major three contracts to settle with gains yesterday, in the face of a 10.3 million barrel build in inventories, the biggest build since February 2017 and 7th biggest in the history of the report. Apparently rumors and hopes of something actually coming from “supply cut talks” from OPEC was enough to keep the American benchmark in the green. The oil cartel will meet on December 6th to discuss production levels after which we will have not even close to a better idea of what to expect in 2019.
Prices are on the move this morning, RBOB and HO futures are adding around 3 cents so far today. While overtaking yesterday’s highs in pre-market trading seems bullish, the refined product contract still have a way to go to buck the bearish trend that’s been plaguing them since October. Peg $1.65 for gas and $2.15 for diesel as pivot points where the trend might spell higher prices going forward. WTI’s got a little further to go, will likely oscillate in the $50-$60 for the foreseeable future.
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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.