Energy Markets Starting August Trading With A Thud

Market TalkThursday, Aug 1 2019
Energy Prices Treading Water

Energy markets are starting August trading with a thud, with crude prices down a dollar or more and products down 3-4 cents, as disappointment in the FED seems to be outweighing inventory draws reported by the DOE.

The FED did announce its first interest rate cut in a decade Wednesday, but financial markets threw a small tantrum that it was only 25 points, and perhaps more importantly that the FED chairman said this was not the first of many. That late selling in equities carried over into the energy arena as product prices dropped 1-2 cents post settlement, and that weakness carried through the overnight session. One other reason for concern in the FED’s rate cut: Look at the chart below and note that more often than not, when the FED starts cutting rates, there’s a recession in the not-too-distant future.

Dramatic video of an explosion at the Exxon Baytown refinery – the 3rd largest refinery in the US – had futures and cash markets rallying briefly Wednesday morning. When it was discovered the fire was contained to the chemical plant section of the refinery and that gasoline and diesel production may not be affected however, prices quickly settled back down.

Notable items from the DOE weekly status report:

US crude production bounced back by 900,000 barrels/day last week as rigs shuttered by Hurricane Barry came back online. The total is now just 100,000 barrels from the all-time high.

US petroleum demand estimates dipped on the week, but are holding above their seasonal range. The EIA also announced that electricity demand had reached a two year high this week as a heat wave swept across the US, which could bring some much-needed incremental diesel demand to supplement traditional power generation sources.

A big deal was announced Wednesday when the UK’s EG Group announced its planned acquisition of Cumberland Farms’ C-Store Chain, after buying Kroger’s C-Stores last year. An interesting side note to this story, the British pound has been plunging recently, largely due to Brexit concerns, which means the actual purchase price for the acquirers may be rising rapidly even though the dollar amount isn’t changing.

Two storm systems continue to churn in the Atlantic. The first still looks like a non-event, but the second is now given a 70% chance of developing over the next 5 days. That system – known for now as 96-L – will need to be watched over the next week as there is a window in which it could be steered towards the US.

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Market TalkFriday, Jul 19 2024

Summertime-Friday-Apathy Trade Influencing Energy Markets

Energy markets are treading water to start the day as the Summertime-Friday-Apathy trade seems to be influencing markets around the world in the early going. RBOB futures are trying for a 3rd straight day of gains to wipe out the losses we saw to start the week, while ULSD futures continue to look like the weak link, trading lower for a 2nd day and down nearly 3 cents for the week.

Bad to worse: Exxon’s Joliet refinery remains offline with reports that repairs may take through the end of the month. On top of that long delay in restoring power to the facility, ENT reported this morning that the facility has leaked hydrogen fluoride acid gas, which is a dangerous and controversial chemical used in alkylation units. Chicago basis values continue to rally because of the extended downtime, with RBOB differentials approaching a 50-cent premium to futures, which sets wholesale prices just below the $3 mark, while ULSD has gone from the weakest in the country a month ago to the strongest today. In a sign of how soft the diesel market is over most of the US, however, the premium commanded in a distressed market is still only 2 cents above prompt futures.

The 135mb Calcasieu Refinery near Lake Charles LA has been taken offline this morning after a nearby power substation went out, and early reports suggest repairs will take about a week. There is no word yet if that power substation issue has any impacts on the nearby Citgo Lake Charles or P66 Westlake refineries.

Two tanker ships collided and caught fire off the coast of Singapore this morning. One ship was a VLCC which is the largest tanker in the world capable of carrying around 2 million barrels. The other was a smaller ship carrying “only” 300,000 barrels (roughly 12 million gallons) of naphtha. The area is known for vessels in the “dark fleet” swapping products offshore to avoid sanctions, so a collision isn’t too surprising as the vessels regularly come alongside one another, and this shouldn’t disrupt other ships from transiting the area.

That’s (not) a surprise: European auditors have determined the bloc’s green hydrogen goals are unattainable despite billions of dollars of investment, and are based on “political will” rather than analysis. Also (not) surprising, the ambitious plans to build a “next-gen” hydrogen-powered refinery near Tulsa have been delayed.

Click here to download a PDF of Today's TACenergy Market Talk.

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Market TalkThursday, Jul 18 2024

Refined Products Stanch Bleeding Despite Inventory Builds And Demand Slump

Refined products are trading slightly lower to start Thursday after they stopped the bleeding in Wednesday’s session, bouncing more than 2 cents on the day for both RBOB and ULSD, despite healthy inventory builds reported by the DOE along with a large slump in gasoline demand.

Refinery runs are still above average across the board but were pulled in PADD 3 due to the short-term impacts of Beryl. The Gulf Coast region is still outpacing the previous two years and sitting at the top end of its 5-year range as refiners in the region play an interesting game of chicken with margins, betting that someone else’s facility will end up being forced to cut rates before theirs.

Speaking of which, Exxon Joliet was reportedly still offline for a 3rd straight day following weekend thunderstorms that disrupted power to the area. Chicago RBOB basis jumped by another dime during Wednesday’s session as a result of that downtime. Still, that move is fairly pedestrian (so far) in comparison to some of the wild swings we’ve come to expect from the Windy City. IIR via Reuters reports that the facility will be offline for a week.

LA CARBOB differentials are moving in the opposite direction meanwhile as some unlucky seller(s) appear to be stuck long and wrong as gasoline stocks in PADD 5 reach their highest level since February, and held above the 5-year seasonal range for a 4th consecutive week. The 30-cent discount to August RBOB marks the biggest discount to futures since 2022.

The EIA Wednesday also highlighted its forecast for rapid growth in “Other” biofuels production like SAF and Renewable Naptha and Propane, as those producers capable of making SAF instead of RD can add an additional $.75/gallon of federal credits when the Clean Fuels Producer’s Credit takes hold next year. The agency doesn’t break out the products between the various “Other” renewable fuels, but the total projected output of 50 mb/day would amount to roughly 2% of total Jet Fuel production if it was all turned to SAF, which of course it won’t as the other products come along for the ride similar to traditional refining processes.

Click here to download a PDF of today's TACenergy Market Talk

Pivotal Week For Price Action