Fear Seems To Be Creeping Back Into Both Energy And Equity Markets
Fear seems to be creeping back into both energy and equity markets leading to a broad selloff to start the last day of the last “normal” trading week of the year. From here on out volumes and liquidity tend to get sketchy which can create both extremely boring trade, and some very volatile trade depending on how the computer programs manage the lack of human interaction.
Take your pick of fear headlines driving the move lower this morning. Omicron is proving to be spreading faster and vaccine resistant forcing more lockdowns, and more delays of return to work plans. Fear of hawkish central bank policy on inflation. Tech stocks getting hammered. Santa’s elves are struggling with supply chain bottlenecks. Whatever cause you choose, there’s no mistaking that both RBOB and ULSD prices rallied right into their weekly trend-lines and then pulled back sharply in the past 24 hours, which makes the bear market look very much intact, and setting up another test of the $2 mark in the weeks to come.
On the other hand, if you’re bullish on refined product prices heading into the winter, then you might point out that despite the pullback, prices this week did set a higher high and higher low than he past two weeks, and that trend lines are overrated indicators, so there’s really no reason for a big selloff soon, especially with the potential for a Santa Claus rally in stocks coming next week. If you’re in this camp, the vampire squid known as Goldman Sachs agrees with you as they’re making a case that $100 oil is still possible next year.
Speaking of conflicting opinions on market direction: RINs are having a really hard time making up their mind after the EPA changed the game on the RFS last week. After 4 different swings of 30 cents or more, D6 ethanol RINs are hovering just under the $1 mark. D4 RINs have not been as volatile (which is normal for the lower volume contract) and the spread between D4 and D6 has blown out to an all-time record beyond 60 cents for 2021 contracts, compared to spreads of less than a dime for most of this year, while the spread for 2022 contracts is less than 30 cents, reflecting the dramatic change in the RVOs.
Today’s interesting read: A report from the Dallas Fed on the acceleration in US migration from major metro areas to Texas since the pandemic started. Some interesting notes: California/New York and Illinois (Chicago) are seeing mass exodus that would make Moses proud. DFW is the leading recipient of migrants within Texas. People from Houston are moving to DFW, but people from DFW aren’t moving to Houston. Oklahoma is the only state seeing an influx of Texans, which makes sense since it’s basically a suburb of DFW now.
Click here to download a PDF of today's TACenergy Market Talk.
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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.