Energy Rally Takes A Breather
The energy rally is taking a breather as inventory data gives the market reason to pause, even as equity markets continue to point higher.
The API reported inventory builds across the board in the U.S. last week with crude oil inventories up 3.8 million barrels, gasoline up 4.2 million barrels and distillates up by 900,000 gallons. The EIA’s report is due out at its normal time this morning.
OPEC’s monthly oil market report left demand estimates unchanged from their last report, a less optimistic view than the IEA and EIA which had both made small upward revisions to their consumption SWAGs. The report also noted that U.S. crude oil exports were holding steady as Asian demand picked back up, while refined product exports continue to suffer as demand from Latin America continues to languish. That combination continues to pressure U.S. refiners that are struggling with weak crack spreads, and near-record product inventories.
The $1.22 range is providing upside resistance for RBOB, with the front month contract trading near that level in six of the past eight sessions but failing to hold above that level each time. This was similar to the action we saw in April when the mid $0.70 range repelled a dozen or so rallies over the course of two weeks. That resistance leaves ULSD as the only one of the big four petroleum contracts reaching new recovery highs this week, and given that’s the lowest volume contract, it faces an uphill battle to pull the rest of the complex higher on its own.
Spot ethanol prices have returned to pre-COVID-19 levels this week as gasoline demand continues its slow march higher, while many ethanol production facilities are running below capacity, or splitting time with making sanitizing products. Just like in oil refineries, ethanol plants face a complicated logistical puzzle this year as they try to match the demand recovery that’s difficult to predict.
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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.
Click here to download a PDF of today's TACenergy Market Talk.
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.