Mixed Bag For Energy Markets To Start Friday After Thursday Near 3-Month Highs
It’s a mixed bag for energy markets to start Friday’s session after another strong finish Thursday pushed prices closer to 3-month highs. Supply disruptions and stronger equity markets both seem to be contributing to the recent price rally, while the recession fears seem to have been put on the back burner for now. The moves have not been particularly impressive, however, and there are still mixed messages being sent by the daily and weekly charts, so a pullback in the coming days to relieve an over-bought market is looking likely.
More than 12 years after a revolution, Libya is still struggling to figure out who’s calling the shots. This week, 3 of the country’s largest oil fields have been shut in due to protests, taking around 400,000 barrels/day of production offline. Libya, Nigeria, Venezuela, and Iran are all exempt from the OPEC & Friends voluntary production cuts, and up until this latest shut-in, that had been a bearish factor on prices as exports from these underachieving producers had been growing.
Another day, another California Refinery having issues: Chevron’s refinery in Richmond CA was forced to shut units on Thursday for unplanned repairs. Basis values across the state had rallied sharply in the past week as a rash of unplanned issues hit the majority of the refineries left in the state, but dropped sharply this week after the DOE report showed actual run rates had increased to a 3-year high despite those operating hiccups. So far the Chevron news hasn’t stirred up much in the SF Bay area spot market, but there’s a chance we could see another big bounce if the downtime is significant.
So far the Texas energy grid has held up well after consecutive days of record energy use. With another week of near-record heat and energy consumption in the forecast, there is a concern we could end up seeing refinery disruptions if the grid struggles, although it seems very unlikely we’ll see anything resembling the chaotic shutdowns we did in February 2021.
The EPA issued a statement this morning that said it would be announcing decisions involving petitions from small refineries for exemption from the Renewable Fuel Standard at 4 pm Eastern time today. In years past the yo-yo policies on small refinery exemptions (which largely depended on the party controlling the white house at the time) have had an outsized influence on RIN price movements. It’s hard to imagine the current administration changing its stance and suddenly going easy on refiners after denying essentially every petition the past couple of years, but nevertheless, RIN traders will be forced to pay attention this afternoon.
California’s Air Resource Board (CARB) announced another workshop to review potential amendments to its Cap & Trade Program on Wednesday, which sent CCA values rallying Thursday to their highest level in more than a year. While it’s still very much unknown what changes will be proposed, or whether or not those proposals will become law, there’s no mistaking the agency's attempt to make things harder on the industry, which favors higher credit values. LCFS values meanwhile continue their recent slide as the rapid influx of new renewable production continues to increase the supply of those credits, which are generated by renewable producers, whereas the CCA credits are just made up by CARB.
Subtropical storm Don has formed in the Atlantic, but won’t be a threat to land, and just offers another reminder that while we’re enjoying a Saharan Dust-induced reprieve from hurricane activity at the moment, the stage is set for the tropics to crank up in a hurry at some point this summer.
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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.
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.