Energy Prices Are Jumping Today On Reports That OPEC+ Are Planning On Cutting Production In Order To Stem Further Oil Price Declines
Energy prices are jumping today on reports that OPEC+ are planning on cutting production in order to stem further oil price declines. While there is no definitive word if there will be a cut and how much it will be, the upcoming meeting between the cartel’s ministers in Austria this Wednesday will be the first time OPEC officials have met since 2020, leading some to believe a major decision will be made. West Texas Intermediate crude oil futures are leading the complex higher this morning, adding $4.25 per barrel to start the day. Prompt month gasoline and diesel futures are up 10-12 cents per gallon.
The summer grade of gasoline in California remains at historic premiums over the national benchmark with both Los Angeles and San Francisco physical barrels valued at $2.30-$2.40 over the NYMEX futures price. The most recent run-up in gasoline prices, which has sky-rocketed retail prices to almost $7 per gallon, has driven the CA governor to ask that the California Air Resource Board allow and early release of winter blend gasoline.
The remnants of Hurricane Ian are dissipating over Maryland after causing power outages in Virginia and the Carolinas over the weekend. Impacts to energy infrastructure remained localized and minimal through this storm but we aren’t out of the woods yet. The NHC is tracking a system on the north coast of South America that has a 40% chance of developing in the next week and projects it moving into the Caribbean.
Money managers boosted their short bets on all three major American energy futures contracts last week. The net positions in both Heating Oil and WTI dropped significantly while there were enough bullish positions added onto the RBOB contract to keep its week-on-week change positive. Open Interest in crude oil futures remains at multi-year record low levels, signaling that market participants either packed up and went home or are maintaining a wait-and-see approach to making bets on oil prices.
Baker Hughes reported a net increase in active oil production rigs in the US last week. The addition of two production platforms brings the total count up to 604, which is the highest level it has been since the COVID lockdowns in March of 2020.
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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.