Energy Markets Are Moving Sharply Higher Tuesday, Erasing Most Of The Large Losses From Monday’s Session
Energy markets are moving sharply higher Tuesday, erasing most of the large losses from Monday’s session. An uptick in fighting in the Ukraine, some relaxation in Shanghai’s COVID lockdown restrictions, and a reminder from OPEC that help is not on the way are all getting some credit for the big bounce in futures. From a technical perspective, this bounce keeps the weekly trend-lines intact, and keeps the door open for another significant move higher in the next few weeks.
An announcement from the White House is getting lots of headlines over a largely meaningless approval of E15, in an attempt to lower gasoline prices/garner some votes while largely ignoring a more impactful shift in biofuel production options.
The approval of E15, which had already been approved under the previous administration, only to have that approval struck down by the courts, probably won’t change much as the markets equipped and eager to move more ethanol (aka the Midwest corn growing states) are already relatively well supplied with gasoline vs the coastal markets, that are having just as hard a time finding ethanol due to logistical bottlenecks with rail cars and trucks as they are finding extra gasoline. There’s also that dirty little detail that ethanol blends may actually pollute more than gasoline, particularly higher blends in the warmer months, that continues to be an inconvenient detail when the world suddenly cares more about high prices than climate change.
Meanwhile, buried in the last paragraph of the White House announcement, and ignored by the headlines, was word that the EPA is proposing approval of Canola Oil as an “advanced biofuel” feedstock for Renewable Diesel and SAF. This move could be significant as some claim that Canola can produce 4X the oil per acre as soybeans, and should help alleviate some of the stress on feedstock supplies if the EPA’s pathway is approved later this year.
OPEC’s monthly oil market report is due out later this morning. Last month’s report took an unusual but honest approach to forecasting, saying they simply weren’t yet able to predict the impact to demand caused by the fallout from Russia’s invasion of Ukraine. Yesterday, cartel officials told the EU that they would be unable to replace Russian oil exports, which could create one of the worst oil supply shocks ever.
The EIA this morning gave a good reminder of how globally intertwined US energy supplies are, reporting that both imports and exports of petroleum products increased last year. Other petroleum products continue to be the largest mover of both imports and exports as petrochemicals to support numerous non-transportation-related items continues to grow even as the world tries to go green.
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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.