Equity Prices Whipsawed By Stimulus Package Rumors
Energy prices are pulling back after a strong two-day rally as Hurricane Delta’s path has made a favorable shift away from most NOLA area refineries, and after the EIA painted a bleak outlook for fuel consumption. Equity prices are getting whipsawed around by stimulus package rumors which is having some trickle-down effect on energy prices as well.
Hurricane Delta blew up to a Category 4 storm Tuesday, and made landfall on the Yucatan peninsula near Cancun this morning. Forecasts expect the storm will regain Category 4 strength as it moves over the Gulf of Mexico, but its latest tracks have it hitting further west along the Louisiana coast. That shift in path puts more land between the storm and most numerous refineries in its path, and may mean New Orleans will dodge yet another bullet this year, which seems to be contributing to the early pullback in product prices.
The API reported draws in refined products of one million barrels/distillates and 867k barrels for gasoline, while crude stocks built by nearly one million gallons. The DOE’s weekly report is due out at its normal time this morning.
The EIA’s monthly Short Term Energy Outlook predicts increased heating demand across the U.S. this year as a colder winter and work-from-home policies will combine to increase heating consumption. Thanks to ample supplies of natural gas, propane and diesel however, the average cost of heating homes is expected to remain similar to last year. The forecast once again reduced global fuel consumption estimates, largely due to the lingering effects of COVID-19. The report also highlights the challenges faced by refiners, particularly on the distillate side of the barrel, which helps to explain the drastic changes in the industry over the past six months.
One of the first refining casualties of the COVID fallout, the Come By Chance plant in Newfoundland, is once again feeling the pain of this low-margin environment as Irving Oil terminated its deal to purchase the facility this week. That announcement won’t have an immediate impact on supply as the plant has been idled for some time.
While refinery shut downs and conversions have become the norm across much of the world, with more expected in the coming months, China apparently hasn’t received the memo as they’re reportedly plowing ahead with construction of four new major plants, with nearly 1.5 million barrels/day of combined capacity, just in time for the world not to need them.
Click here to download a PDF of today's TACenergy Market Talk.
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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.