Modest Round Of Selling Picked Back Up
After a healthy recovery rally fizzled at the close of Monday’s trading, a modest round of selling has picked back up to start Tuesday’s session. It’s common to see a period of sideways price action as traders reassess, balance positions and/or lick their wounds following a heavy sell-off like we saw last week, so it’s possible that November will end with some choppy back and forth action.
The big drop in futures Friday when spot markets were closed created plenty of confusion across the downstream sectors of the industry, with many wondering why wholesale prices fell sharply on Monday even though futures were up on the day. The product price estimates in the daily market overview attachment show the net result from when spot prices closed Wednesday, until they reopened Monday.
As the 2 month melt-down drags on, concerns are growing for the health of US Oil producers, while US Oil refiners are spending billions to take advantage of that new production.
Speaking of US Refiners, there was finally some good news for Citgo in the past week: Venezuela reached a settlement agreement to maintain control of its US-based refining arm. There still are some hurdles to clear however. A similar deal failed previously when Venezuela couldn’t make its agreed-upon payments, and a visit by the head of Rosneft over the weekend was a reminder that not all of the country’s creditors will allow being moved to the back of the payment line.
Large speculators cut their net-long holdings in all of the “big 4” petroleum futures contracts (Brent, WTI, RBOB, ULSD) for a 6th consecutive week last week. Given the size of the drop we saw on black Friday, it seems likely that we could see this reduction in bets on higher prices continue for a 7th week, but the pace of liquidation is slowing, which suggests the big money betters may already have left the energy building. If true, this could be a contrary indicator suggesting that prices may be near a bottom, at least in the short term.
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Energy Futures Are Caught Up In Headline Tug-O-War This Morning
Energy futures are caught up in headline tug-o-war this morning with Canadian oil production concerns and a positive US GDP report trying to push prices higher while sinking Chinese demand worries and Gaza ceasefire hopes are applying downward pressure. The latter two seem to be favored more so far this morning with WTI and Brent crude oil futures down ~45 cents per barrel, while gasoline and diesel prices are down about half a cent and two cents, respectively.
No news is good news? Chicago gasoline prices dropped nearly 30 cents yesterday, despite there not being any update on Exxon’s Joliet refinery after further damage was discovered Wednesday. Its tough to say if traders have realized the supply situation isn’t as bad as originally thought or if this historically volatile market is just being itself (aka ‘Chicago being Chicago’).
The rain isn’t letting up along the Texas Gulf Coast today and is forecasted to carry on through the weekend. While much of the greater Houston area is under flood watch, only two refineries are within the (more serious) flood warning area: Marathon’s Galveston Bay and Valero’s Texas City refineries. However, notification that more work is needed at Phillip’s 66 Borger refinery (up in the panhandle) is the only filing we’ve seen come through the TECQ, so far.
Premiums over the tariff on Colonial’s Line 1 (aka linespace value) returned to zero yesterday, and actually traded in the negatives, after its extended run of positive values atypical of this time of year. Line 1’s counterpart, Line 2, which carries distillates from Houston to Greensboro NC, has traded at a discount so far this year, due to the healthy, if not over-, supply of diesel along the eastern seaboard.
Click here to download a PDF of today's TACenergy Market Talk.
WTI And Brent Crude Oil Futures Are Trading ~$1.50 Per Barrel Lower In Pre-Market Trading
The across-the-board drawdown in national energy stockpiles, as reported by the Department of Energy yesterday, stoked bullish sentiment Wednesday and prompt month gasoline, diesel, and crude oil futures published gains on the day. Those gains are being given back this morning.
The surprise rate cut by the People’s Bank of China is being blamed for the selling we are seeing in energy markets this morning. While the interest rate drop in both short- and medium-term loans won’t likely affect energy prices outright, the concern lies in the overall economic health of the world’s second largest economy and crude oil consumer. Prompt month WTI and Brent crude oil futures are trading ~$1.50 per barrel lower in pre-market trading, gasoline and diesel are following suit, shaving off .0400-.0450 per gallon.
Chicagoland RBOB has maintained its 60-cent premium over New York prices through this morning and shows no sign of coming down any time soon. Quite the opposite in fact: the storm damage, which knocked Exxon Mobil’s Joliet refinery offline on 7/15, seems to be more extensive than initially thought, potentially extending the repair time and pushing back the expected return date.
There are three main refineries that feed the Chicago market, the impact from one of them shutting down abruptly can be seen in the charts derived from aforementioned data published by the DOE. Refinery throughput in PADD 2 dropped 183,000 barrels per day, driving gasoline stockpiles in the area down to a new 5-year seasonal low.
While it seems all is quiet on the Atlantic front (for now), America’s Refineryland is forecasted to receive non-stop rain and thunderstorms for the next four days. While it may not be as dramatic as a hurricane, flooding and power outages can shut down refineries, and cities for that matter, all the same, as we learned from Beryl.