Gasoline Futures Attempted To Pull Energy Complex Higher
Gasoline futures are attempted to pull the rest of the energy complex higher to start Friday’s trading as a rash of refinery issues have encouraged buyers to push up near-term prices. Diesel futures are still trading in the red however as a quick 50-70 degree warm-up after this week’s record-setting cold snap will end the spike in heating demand. Thursday’s session will be remembered for another large reversal in oil and refined products, after WTI and ULSD briefly hit new highs for the year, showing that the bulls may be lacking conviction to break out of sideways trading range, but most contracts did finish January with healthy gains, snapping a 3 month losing streak.
The list of Midwestern refineries having issues due to extreme cold continued to grow Thursday, with outages reported and/or rumored at Citgo, BP, Marathon, Husky and P66 plants in the region, and strong cash market buying (note the Chicago RBOB basis values in the chart below) suggesting they weren’t the only facilities having problems. The two big questions become 1) was any long term damage done and 2) will consumers even notice given the large numbers of businesses & schools shuttered due to the weather.
Those refinery outages, coupled with the large drop in total US refinery runs the DOE reported for last week, seems to be helping gasoline time & crack spreads find a bid in the past couple of days. With March futures taking the prompt position today, there is now a 20 cent spread between the first and second RBOB contracts as we approach the always-volatile spring RVP transition.
It’s been a busy week of earnings reports for all segments of the energy industry. A few common themes seem to be a continued race to build infrastructure that will support the latest US Oil boom, good – not great – domestic consumption, and plenty of concern about the global economy in 2019.
The January jobs report was released this morning, in which the Bureau of Labor Statistics seems to have given credence to one of Mark Twain’s borrowed phrase about the 3 types of lies. The agency made a huge cut back in December’s estimated job growth from 312k to 222k jobs for the month. The January figure was estimated at 304k jobs, while the official unemployment rate ticked up .01% to 4.0%. If you’re wondering, the bureau didn’t count the hundreds of thousands of Federal employees who were not being paid as unemployed in the official numbers. The U-6 rate, which doesn’t exclude unemployed people the BLS doesn’t classify as unemployed, was up to 8.1% from 7.6% the week prior. Stocks and energy futures seemed to tick up slightly after the report as this bit of good news for January, bad news for December, seems to add to the “Patient Fed” plan that’s encouraged investors since Wednesday’s FOMC announcement.
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Energy Prices Fluctuate: Chinese Imports Surge, Saudi Arabia Cuts Output and Buys Golf
Energy prices continue their back-and-forth trading, starting Wednesday’s session with modest gains, after a round of selling Tuesday wiped out the Saudi output cut bounce.
A surge in China’s imports of crude oil and natural gas seem to be the catalyst for the early move higher, even though weak export activity from the world’s largest fuel buyer suggests the global economy is still struggling.
New tactic? Saudi Arabia’s plan to voluntarily cut oil production by another 1 million barrels/day failed to sustain a rally in oil prices to start the week, so they bought the PGA tour.
The EIA’s monthly Short Term Energy Outlook raised its price forecast for oil, citing the Saudi cuts, and OPEC’s commitment to extend current production restrictions through 2024. The increase in prices comes despite reducing the forecast for US fuel consumption, as GDP growth projections continue to decline from previous estimates.
The report included a special article on diesel consumption, and its changing relationship with economic activity that does a good job of explaining why diesel prices are $2/gallon cheaper today than they were a year ago.
The API reported healthy builds in refined product inventories last week, with distillates up 4.5 million barrels while gasoline stocks were up 2.4 million barrels in the wake of Memorial Day. Crude inventories declined by 1.7 million barrels on the week. The DOE’s weekly report is due out at its normal time this morning.
We’re still waiting on the EPA’s final ruling on the Renewable Fuel Standard for the next few years, which is due a week from today, but another Reuters article suggests that eRINs will not be included in this round of making up the rules.
Click here to download a PDF of today's TACenergy Market Talk.
Week 23 - US DOE Inventory Recap
Energy Prices Retreat, Global Demand Concerns Loom
So much for that rally. Energy prices have given back all of the gains made following Saudi Arabia’s announcement that it would voluntarily withhold another 1 million barrels/day of oil production starting in July. The pullback appears to be rooted in the ongoing concerns over global demand after a soft PMI report for May while markets start to focus on what the FED will do at its FOMC meeting next week.
The lack of follow through to the upside leaves petroleum futures stuck in neutral technical territory, and since the top end of the recent trading range didn’t break, it seems likely we could see another test of the lower end of the range in the near future.
RIN prices have dropped sharply in the past few sessions, with traders apparently not waiting on the EPA’s final RFS ruling – due in a week – to liquidate positions. D6 values dropped to their lowest levels in a year Monday, while D4 values hit a 15-month low. In unrelated news, the DOE’s attempt to turn seaweed into biofuels has run into a whale problem.
Valero reported a process leak at its Three Rivers TX refinery that lasted a fully 24 hours. That’s the latest in a string of upsets for south Texas refineries over the past month that have kept supplies from San Antonio, Austin and DFW tighter than normal. Citgo Corpus Christi also reported an upset over the weekend at a sulfur recovery unit. Several Corpus facilities have been reporting issues since widespread power outages knocked all of the local plants offline last month.
Meanwhile, the Marathon Galveston Bay (FKA Texas City) refinery had another issue over the weekend as an oil movement line was found to be leaking underground but does not appear to have impacted refining operations at the facility. Gulf Coast traders don’t seem concerned by any of the latest refinery issues, with basis values holding steady to start the week.
Click here to download a PDF of today's TACenergy Market Talk.