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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The Energy Bulls Are On The Run This Morning, Lead By Heating And Crude Oil Futures
The energy bulls are on the run this morning, lead by heating and crude oil futures. The November HO contract is trading ~7.5 cents per gallon (2.3%) higher while WTI is bumped $1.24 per barrel (1.3%) so far in pre-market trading. Their gasoline counterpart is rallying in sympathy with .3% gains to start the day.
The October contracts for both RBOB and HO expire today, and while trading action looks to be pretty tame so far, it isn’t a rare occurrence to see some big price swings on expiring contracts as traders look to close their positions. It should be noted that the only physical market pricing still pricing their product off of October futures, while the rest of the nation already switched to the November contract over the last week or so.
We’ve now got two named storms in the Atlantic, Philippe and Rina, but both aren’t expected to develop into major storms. While most models show both storms staying out to sea, the European model for weather forecasting shows there is a possibility that Philippe gets close enough to the Northeast to bring rain to the area, but not much else.
The term “$100 oil” is starting to pop up in headlines more and more mostly because WTI settled above the $90 level back on Tuesday, but partially because it’s a nice round number that’s easy to yell in debates or hear about from your father-in-law on the golf course. While the prospect of sustained high energy prices could be harmful to the economy, its important to note that the current short supply environment is voluntary. The spigot could be turned back on at any point, which could topple oil prices in short order.
Click here to download a PDF of today's TACenergy Market Talk.
Gasoline And Crude Oil Futures Are All Trading Between .5% And .8% Lower To Start The Day
The energy complex is sagging this morning with the exception of the distillate benchmark as the prompt month trading higher by about a penny. Gasoline and crude oil futures are all trading between .5% and .8% lower to start the day, pulling back after WTI traded above $95 briefly in the overnight session.
There isn’t much in the way of news this morning with most still citing the expectation for tight global supply, inflation and interest rates, and production cuts by OPEC+.
As reported by the Department of Energy yesterday, refinery runs dropped in all PADDs, except for PADD 3, as we plug along into the fall turnaround season. Crude oil inventories drew down last week, despite lower runs and exports, and increased imports, likely due to the crude oil “adjustment” the EIA uses to reconcile any missing barrels from their calculated estimates.
Diesel remains tight in the US, particularly in PADD 5 (West Coast + Nevada, Arizona) but stockpiles are climbing back towards their 5-year seasonal range. It unsurprising to see a spike in ULSD imports to the region since both Los Angeles and San Francisco spot markets are trading at 50+ cent premiums to the NYMEX. We’ve yet to see such relief on the gasoline side of the barrel, and we likely won’t until the market switches to a higher RVP.