Energy Continue Lower on Lower Chinese Imports, Saudi Oil Stockpile

Energy futures are giving back a big portion of the strong gains they saw last week as economic uncertainties continue to send mixed signals to financial markets. Meanwhile, severe weather has caused numerous local disruptions over the past week and is sparking concerns about more widespread issues as hurricane season is ramping up ahead of schedule.    

Reminder that due to the holiday, the price changes you’re seeing today are relative to Friday’s levels, not in addition to the losses made in the abbreviated futures trading session Monday.

Last week strong Chinese refinery runs were often cited for the move higher in fuel prices, but this week a drop off in Chinese fuel oil imports is getting blamed for some of the pullback as the economic recovery of 1.3 billion people getting out of lockdown seems to have hit a speed bump. 

So that’s why they’re cutting output? Reports that Saudi Arabia is sitting on more than 20 million barrels of oil in floating storage aren’t helping encourage buyers to step in so far this week, particularly since the market structure isn’t encouraging storage plays, and may instead be signaling a lack of buyers. 

Tropical Storm Bret was named Monday and is expected to strengthen to a hurricane by tomorrow.  The forecasts are widely varied for this unusual June storm, with most models suggesting the storm will either continue West and hit Central America, or hook north and head out to sea, although a few models do give an outside chance of a threat to Florida or further north along the East Coast so we can’t ignore it completely.  Right behind Bret, another storm system is given 80% odds of development this morning, although early forecasts have it heading north and staying offshore for now.

While forecast tracks suggest low odds that either tropical system makes landfall in the US, large parts of the country are still facing severe weather threats and flooding rains from inland storms. So far there have been several power outages reported at refineries over the past week stretching from the TX panhandle to the Delek facility in Tyler TX, and Calumet’s refinery in Shreveport along with several East Texas terminals reporting short term power and fuel outages.

Tulsa Oklahoma declared a state of emergency after storms knocked out power to hundreds of thousands of homes and businesses, and disrupted terminal activities at 2 local product racks. The HF Sinclair refinery is also reported to be without power, which is sparking concerns of localized fuel shortages if the lights aren’t turned back on soon. The Tulsa area also holds key break-out tankage for the Explorer and Magellan pipelines that bring products from the Gulf Coast to the Midwest, and while no operational upsets have yet been reported at the pipeline facilities, it seems unlikely they escaped the storms unscathed given their close proximity to the other issues.

So far, the larger refineries along the coast that make up the heart of US fuel production have not yet been impacted, and the storms are largely staying north and east of those facilities, although New Orleans-area plants are very close to a round of heavy thunderstorms and could still see some weather-related disruptions this week.

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