First Evidence Of Fall Refinery Maintenance Season
The first evidence of fall refinery maintenance season started to show up in yesterday’s EIA data release as refinery runs fell almost half a million barrels per day across the country. That draw down seems less significant when paired with the fact that throughputs are still ¾ million barrels per day higher than they were in 2016 and remain at record seasonal highs for the time being. RBOB and HO futures saw some increased buying pressure yesterday as a result and finished up 1-1.5 cents after starting the day in the red.
Even though the refineries were using less crude oil last week, we still saw a drop in national and Cushing oil stocks for the same time period due to a 30% bump in exports. This combined with a Saudi statement that the Kingdom will not help backfill supply shortages caused by fellow OPEC members Iran and Venezuela, pushed WTI futures prices almost $2 higher to settle above $71. The American oil benchmark settled at levels not seen since early July.
Tropical activity remains low so far this week with only one disturbance showing a 20% chance of cyclonic formation for the next couple days. The potential system located 800 miles off the Venezuelan coast has a low likelihood of disturbing energy infrastructure in the US.
The phenomenon affectionately(?) known as Reversal Thursday seems to have a hold of energy prices so far this morning. After a strong week of gains the complex seems to want a day’s rest: RBOB and HO are down almost half a cent while WTI is nearly flat, seemingly resolved to stay above the $70 mark.
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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.
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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.