Hurricane Lee Continues To Loom Large, OPEC’s Oil Output Increased By 113mb/Day
WTI is taking a turn trying to lead the energy complex higher to start Tuesday’s session, reaching a new high for the year at $88.61 in the early going, while ULSD futures are seeing a modest pullback after reaching at new 8-month high at $3.4027 Monday.
Hurricane Lee continues to loom large, with the chance of a strike on New England increasing as it makes its slow journey towards the coast. Some models have Lee making landfall as a tropical storm Sunday between Portland and Bangor Maine, with tropical storm force winds extending to Boston and Providence which is likely to force several terminals in the area to close as a precaution over the weekend. The “official” US model used by the EIA has Lee coming close to making a direct hit on St. John New Brunswick, home to Irving Oil’s 320mb/day refinery that is both Canada’s largest facility and the largest importer into the US East Coast. That plant is scheduled to begin its largest turnaround project in years on Sunday, the same day the storm is going to hit, which is good news for short term supplies since the market was already prepared to do without that plants production, and bad news for the 2,300 workers scheduled to be brought in for the project who may not have packed a rain suit.
A Reuters note cited the turnaround at Irving, along with planned work at Delta’s Trainer PA refinery for the recent strength in distillates, that have seen a strong rally in outright values, and spreads. While the recent strength in ULSD calendar spreads is certainly noteworthy, it also pales in comparison to what we saw last year (see charts below).
OPEC’s oil output increased by 113mb/day last month according to its September Oil Market Outlook released this morning, as increases from Iran and Nigeria offset the ongoing voluntary reductions from Saudi Arabia. The US and Iran have been playing nice with each other in recent days, which could allow for more exports to flow from that country that’s still producing well below capacity due to sanctions.
OPEC’s economists held their outlook for the global economy and oil demand steady for the month, and revised their non-OPEC supply estimates for the year slightly higher due to additional output from the US, Brazil and Norway. The report also highlighted strong refining margins in August with strong jet fuel and kerosene demand helping to strengthen diesel prices. In shipping news, OPEC’s analysts highlighted that rates to ship crude oil internationally continue to decline as new options expand, while rates for shipping refined products continue to increase.
The EIA’s Short Term Energy Outlook will be released later this morning while the IEA is attempting to stay relevant with lofty claims that the world is almost sort of just about ready to start using less fossil fuels.
Exxon reported another upset at its recently-expanded Beaumont TX facility but said the malfunction in a release valve on an FCC unit only last 10 minutes, which probably means little to no impact on production at the facility that now unofficially ranks as the 2nd largest in the US.
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View AllThe 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.