Energy Futures Cooling Their Heels
Energy futures are cooling their heels to start Wednesday’s session, after a strong move Tuesday put oil and diesel prices back within striking distance of 4-year highs. The Iranian stories that helped push prices up over the past few months seem to have taken a backseat this week as news stories closer to home have taken back most of the headlines.
Hurricane Michael grew to Category 4 status, and could be the strongest storm ever to hit the Florida Panhandle when it makes landfall later today. As the EIA’s interactive energy disruption map below shows, the storm passed far enough to the east of the oil production and refining assets in and along the coast of the Gulf of Mexico that energy supplies (or prices) should not be materially affected. Most of the marine terminals in the area began closing yesterday afternoon as a precaution, with the Panama city terminal under the most direct threat, while the marine terminals in Niceville and Freeport are in the relatively favorable position of being just west of the storm’s path which should (hopefully) minimize the storm surge effects.
The damage assessment continues at Irving’s St. John refinery after Monday’s explosion and fire. Gasoline markets seemed to have shrugged off the news since the fire was reported in a diesel-treating unit, and East Coast gasoline stocks are in ample supply. Diesel prices are finding some strength from the news as regional supplies were already at the lower end of their seasonal ranges, and if there was extensive damage to the hydro-treater it could be some time before the plant resumes normal ULSD production. That said, the largest supplier of fuel to several New England markets was at last report completely shut down, leaving state officials more worried about supplies than traders have been…so far.
The president told the EPA to waive RVP restrictions to allow year-round sales of E15 gasoline (no coincidence the announcement came on the same day as a planned trip to Iowa). Given the uncertainty surrounding engine warranties (aka lawsuits) with higher ethanol blends, this announcement may prove to be nothing more than an attempt to sway mid-term elections, but it does appear to have helped ethanol prices continue their pullback from multi-year lows, while RIN values continued on their slump as the prospect of more biofuel blending is bearish for the credits.
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Energy Prices Fluctuate: Chinese Imports Surge, Saudi Arabia Cuts Output and Buys Golf
Energy prices continue their back-and-forth trading, starting Wednesday’s session with modest gains, after a round of selling Tuesday wiped out the Saudi output cut bounce.
A surge in China’s imports of crude oil and natural gas seem to be the catalyst for the early move higher, even though weak export activity from the world’s largest fuel buyer suggests the global economy is still struggling.
New tactic? Saudi Arabia’s plan to voluntarily cut oil production by another 1 million barrels/day failed to sustain a rally in oil prices to start the week, so they bought the PGA tour.
The EIA’s monthly Short Term Energy Outlook raised its price forecast for oil, citing the Saudi cuts, and OPEC’s commitment to extend current production restrictions through 2024. The increase in prices comes despite reducing the forecast for US fuel consumption, as GDP growth projections continue to decline from previous estimates.
The report included a special article on diesel consumption, and its changing relationship with economic activity that does a good job of explaining why diesel prices are $2/gallon cheaper today than they were a year ago.
The API reported healthy builds in refined product inventories last week, with distillates up 4.5 million barrels while gasoline stocks were up 2.4 million barrels in the wake of Memorial Day. Crude inventories declined by 1.7 million barrels on the week. The DOE’s weekly report is due out at its normal time this morning.
We’re still waiting on the EPA’s final ruling on the Renewable Fuel Standard for the next few years, which is due a week from today, but another Reuters article suggests that eRINs will not be included in this round of making up the rules.
Click here to download a PDF of today's TACenergy Market Talk.
Week 23 - US DOE Inventory Recap
Energy Prices Retreat, Global Demand Concerns Loom
So much for that rally. Energy prices have given back all of the gains made following Saudi Arabia’s announcement that it would voluntarily withhold another 1 million barrels/day of oil production starting in July. The pullback appears to be rooted in the ongoing concerns over global demand after a soft PMI report for May while markets start to focus on what the FED will do at its FOMC meeting next week.
The lack of follow through to the upside leaves petroleum futures stuck in neutral technical territory, and since the top end of the recent trading range didn’t break, it seems likely we could see another test of the lower end of the range in the near future.
RIN prices have dropped sharply in the past few sessions, with traders apparently not waiting on the EPA’s final RFS ruling – due in a week – to liquidate positions. D6 values dropped to their lowest levels in a year Monday, while D4 values hit a 15-month low. In unrelated news, the DOE’s attempt to turn seaweed into biofuels has run into a whale problem.
Valero reported a process leak at its Three Rivers TX refinery that lasted a fully 24 hours. That’s the latest in a string of upsets for south Texas refineries over the past month that have kept supplies from San Antonio, Austin and DFW tighter than normal. Citgo Corpus Christi also reported an upset over the weekend at a sulfur recovery unit. Several Corpus facilities have been reporting issues since widespread power outages knocked all of the local plants offline last month.
Meanwhile, the Marathon Galveston Bay (FKA Texas City) refinery had another issue over the weekend as an oil movement line was found to be leaking underground but does not appear to have impacted refining operations at the facility. Gulf Coast traders don’t seem concerned by any of the latest refinery issues, with basis values holding steady to start the week.
Click here to download a PDF of today's TACenergy Market Talk.