Energy Prices Stumble Into The Weekend
Energy prices are stumbling into the weekend after an impressive bounce-back Thursday seemed to stem the tide of selling. U.S. equity markets have followed a similar pattern, rallying sharply after heavy selling, following the FED’s announcement that it would roll back part of the Volcker rule that restricted banks from certain trading activities.
The weekly action has been rough for refiners as gasoline took the hardest hit, adding further pressure to crack spreads that are already treading in troubled waters. The forward curve charts below suggest that the market is expecting those margins to improve slowly over time, but at the current rate of demand recovery, prices suggest a challenging environment for the next nine months.
The EIA this morning reported that the U.S. reached new record for refining capacity at the start of the year. This report of capacity is less relevant than normal half way through the year, as it includes both the PES refinery capacity – even though it’s been closed for a year – and the Holly Cheyenne facility that’s being converted to RD production. The report did note the Limetree bay (FKA Hovensa) plant was reactivated last year, which is counted in the rarely mention PADD 6.
As U.S. oil output and refinery capacity has grown, the industry has been shifting away from the Cushing, OK hub, while the U.S. Gulf Coast is seeing more traffic. The race to profit from this shift goes beyond the physical markets as reporting agencies are rushing to add to the growing list of USGC based crude oil contracts vying to take share from the WTI contract.
The Dallas FED’s Energy Survey for the second quarter showed the largest drop in activity on record at -66%, which acts as no surprise to anyone who has been awake at some time during the past three months. What was unique in this report was that the FED included a section of special questions to better understand the industry reaction to the pandemic, and the results have several surprises. For example, of the 165 oil and gas firms that responded, only five percent reported pipeline or storage restrictions as a cause for reducing their output. In addition, 85 percent expect to have their shut-in production back online in September, and nearly half expect that even in the $30 range that production will come back online. Charts fall below.
Click here to download a PDF of today's TACenergy Market Talk.
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Week 48 - US DOE Inventory Recap
The API Reported Gasoline Inventories Dropped By 898,000 Barrels Last Week
Gasoline and oil prices are attempting to rally for a 2nd straight day, a day ahead of the delayed OPEC meeting, while diesel prices are slipping back into the red following Tuesday’s strong showing.
The API reported gasoline inventories dropped by 898,000 barrels last week, crude inventories declined by 817,000 barrels while distillates saw an increase of 2.8 million barrels. Those inventory stats help explain the early increases for RBOB and WTI while ULSD is trading lower. The DOE’s weekly report is due out at its normal time this morning.
A severe storm on the Black Sea is disrupting roughly 2% of the world’s daily oil output and is getting some credit for the bounce in futures, although early reports suggest that this will be a short-lived event.
Chevron reported that its Richmond CA refinery was back online after a power outage Monday night. San Francisco spot diesel basis values rallied more than a dime Tuesday after a big drop on Monday following the news of that refinery being knocked offline.
Just a few days after Scotland’s only refinery announced it would close in 2025, Exxon touted its newest refinery expansion project in the UK Tuesday, with a video detailing how it was ramping up diesel production to reduce imports and possibly allow for SAF production down the road at its Fawley facility.
Ethanol prices continue to slump this week, reaching a 2-year low despite the bounce in gasoline prices as corn values dropped to a 3-year low, and the White House appears to be delaying efforts to shift to E15 in an election year.
Click here to download a PDF of today's TACenergy Market Talk.
Values For Space On Colonial’s Main Gasoline Line Continue To Drop This Week
The petroleum complex continues to search for a price floor with relatively quiet price action this week suggesting some traders are going to wait and see what OPEC and Friends can decide on at their meeting Thursday.
Values for space on Colonial’s main gasoline line continue to drop this week, with trades below 10 cents/gallon after reaching a high north of 18-cents earlier in the month. Softer gasoline prices in New York seems to be driving the slide as the 2 regional refiners who had been down for extended maintenance both return to service. Diesel linespace values continue to hold north of 17-cents/gallon as East Coast stocks are holding at the low end of their seasonal range while Gulf Coast inventories are holding at average levels.
Reversal coming? Yesterday we saw basis values for San Francisco spot diesel plummet to the lowest levels of the year, but then overnight the Chevron refinery in Richmond was forced to shut several units due to a power outage which could cause those differentials to quickly find a bid if the supplier is forced to become a buyer to replace that output.
Money managers continued to reduce the net length held in crude oil contracts, with both Brent and WTI seeing long liquidation and new short positions added last week. Perhaps most notable from the weekly COT report data is that funds are continuing their counter-seasonal bets on higher gasoline prices. The net length held by large speculators for RBOB is now at its highest level since Labor Day, at a time of year when prices tend to drop due to seasonal demand weakness.
Click here to download a PDF of today's TACenergy Market Talk.