Energy Futures Are Taking A Breather After Another Strong Day Wednesday
Energy Futures Are Taking A Breather After Another Strong Day Wednesday that saw diesel prices trade north of $2.61 for the first time since October 2014, while WTI briefly traded north of $83 as US crude oil inventories dropped to a 3 year low. For a 2nd straight week, large builds in refined product inventories did little to slow the rally, as the market continues to act like the winter demand doldrums driving those increased stocks will soon be put in the rearview mirror.
Want a very simple reason diesel prices are trading at 7 year highs? Total US Diesel stocks started the year 10 million barrels below where they started the year in 2020, 20 million barrels lower than their 5 year seasonal average, and 35 million barrels below where they started off a year ago. You’d never guess that diesel stocks nationwide are far below average by looking at rack prices across most of the Gulf Coast, Midwest and Southwestern US as spot/rack spreads have collapsed, and in several cases are offered at multi-year lows as regional suppliers struggle to deal with a sudden glut of supply in markets that were extremely tight just 2 months ago.
RINs saw their first large sell-off in nearly 6 weeks after yet another mysterious Reuters exclusive citing unnamed sources suggesting the White House is considering yet another change to RVOs as pressure builds over higher fuel prices, and the environmental arguments for more ethanol continue to wane.
Rain, Snow or Ice? That’s the big question for millions of people along the east coast heading into the weekend with another winter storm sweeping across a large portion of the country. The difference in a few degrees may make a huge difference between an inconvenient rain storm and a crippling shut down as cold temperatures follow close behind the precipitation. There aren’t many refineries in the current path of the storm, but we are likely to see terminal disruptions from Tennessee to the Carolinas as several markets that aren’t used to seeing extended temperatures below freezing are forecast to do so over the next few days.
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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.