Energy Futures Moving Tentatively Higher
Energy futures are moving tentatively higher, reaching fresh 5 month highs to start the week as ongoing refinery issues, supply concerns from OPEC members, and optimism over a US-China trade deal continue to outweigh concerns of an economic slowdown. Although the gains so far are minimal, the break above technical resistance leaves the door open for much higher prices in the coming days.
A strike at Europe’s largest refinery is reported to turn one of the largest sellers in the region into a buyer, which seems to be providing some upward pressure on product prices. Oil meanwhile appears to be getting a boost from reports of more fighting in Libya, although so far the country’s exports – which have been in a constant state of flux for most of the past 8 years - are not immediately at risk.
The latest oil-market news from the Venezuelan saga are reports that output dropped below 1 million barrels due to power outages last month, and the US announced new sanctions on specific vessels to try and cut off export flows to Cuba.
Baker Hughes reported an increase of 15 oil rigs working last week in the US, snapping a 6 week stretch of declines and marking the largest increase since last May. Texas led the way with an increase of 8 total rigs put to work last week, snapping a streak of 12 consecutive weeks of lower figures.
Money managers continue to be cautiously bullish on oil prices, increasing their net-long holdings in both Brent and WTI for a 5th straight week, although the total length is still well below year-ago levels. The speculative category of trader remains fairly bullish on gasoline prices, with net length holding above its 5-year seasonal range, although there was a slight decrease in holdings last week. Those large speculators remain bearish diesel however with ULSD contracts holding in net-short territory (betting on lower prices) for a 2nd week, reaching the lowest levels in nearly 2 years.
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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.