Energy Prices Attempting Move Lower To Begin Penultimate Day of Trading For 2022
Energy prices are attempting another move lower to begin the penultimate day of trading for 2022. We saw a very similar sell-off happening this time yesterday, only to see a strong rally in the afternoon wipe out those losses. Refinery restarts, weak equity markets and increasing COVID counts in China are all getting credit for the selling over the past couple of days, although it’s unclear what may have prompted yesterday’s buying spree that added 14 cents to diesel prices in just under an hour.
The selling in both futures and cash markets seemed to follow news that the country’s largest refineries along the Gulf Coast were making fast work of restarting units shut by last week’s storm, reducing the chances of significant supply disruptions from that downtime.
While many facilities weathered the storm well, there’s at least one long-term casualty so far. Suncor issued a press release Wednesday saying its Commerce City refinery – the only one in the state of Colorado - would shut completely, most likely for several months, to allow for damage assessments and repairs following multiple fires since the plant was knocked offline last week. The release says full operations are expected by late Q1 2023. The loss of a refinery in the Denver area will max out pipeline resupply options from the Midwest, TX Panhandle and from Wyoming. It would also be a great time to have a refinery 100 miles to the north in Cheyenne, but that facility was converted to RD production 2 years ago when oil refiners were desperate to stay afloat. Given the region isn’t directly tied into any major spot markets, don’t expect this shutdown to have an influence on prices beyond the cities directly impacted.
Remarkably, that shutdown announcement may not have been the worst news of the day for the facility, as the EPA announced it was investigating the state of Colorado for discriminatory air permitting policies, which could make restarting the Suncor facility much more challenging. You may recall the EPA recently made it all but impossible for the St. Croix refinery FKA Hovensa to restart after multiple operational upsets, and it’s not too far-fetched to think the Suncor plant could wind up with a similar fate, particularly given its horrible operating track record over the past couple of years.
The API reported small inventory builds for refined products last week of 510,000 barrels of gasoline and 38,000 barrels of distillates, while oil inventories fell by 1.3 million barrels. Given that products still increased despite the pre-Christmas demand rush, and oil only declined slightly despite the Keystone shutdown and importers avoiding taking oil into Texas to avoid year-end taxes, those figures seem pretty bearish and are likely contributing to the latest sell-off attempt. The DOE/EIA’s weekly report is due out at 10 am central today. Don’t expect to see any impact of the refinery shutdowns in this report as the data was collected for the week ending last Friday, right when the storm’s impact was being felt.
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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.