Muted Reaction In Both Futures And Cash Markets
Energy futures are pulling back as August trading wraps up, with damage assessments along the Gulf Coast ongoing while the East Coast braces for another round of flooding rains as Ida moves north. While it will still take days to figure out the extent of the damage to one of the country’s largest oil hubs, the muted reaction in both futures and cash markets suggests the impact of this storm will not be widespread.
What a difference a decade makes: 2011 was the year the US became a net exporter of refined products for the first time since WWII. Prior to that, storms that made a direct hit on the country’s largest oil port, and 2nd largest refinery hub, would be expected to bring price spikes of $1/gallon or more. This time, gulf coast basis values barely flinched at one of the strongest storms to ever hit the Gulf Coast, even though it temporarily shuttered more than 10% of the country’s refining capacity and its largest pipeline, as the capacity to recover simply by not sending barrels to other countries has grown by millions of barrels/day.
Colonial pipeline did report that it was planning on restarting its 2 mainlines Monday night after a precautionary shutdown Sunday. The pipeline formerly known as Plantation, is still operating, but like most in the Baton Rouge area, is struggling with power outages that could end up forcing the need for the line to slow or shut. Exxon’s Baton Rouge refinery, a key origin point for the FKA Plantation pipeline, reported that it was forced to shut multiple units due to a lack of steady power and refinery inputs. Most of the other refineries that shut ahead of the storm have not yet made full damage assessments due to the widespread flooding and power issues. Early estimates are that most avoided major damage, but power supply will be the bottleneck determining how fast restarts can begin.
The EPA granted waiver requests allowing the sale of winter-grade gasoline (11.5lb rvp) 2 weeks earlier than normal in Mississippi and Louisiana to try and help alleviate any potential supply shortages. Pipelines were already just days away from starting to schedule winter grades, and the scope of the waiver is limited to just the 2 states so far, so it shouldn’t put downward pressure on prices elsewhere in the region.
While all eyes were focused on Ida, Tropical storm Julian came and went over the open Atlantic, and Tropical Storm Kate has also formed but looks like it will stay out to sea. Next up in the list for the year is Larry, and the NHC is giving 90% odds of a system moving off the coast of Africa getting that name later this week. That system is a good reminder that we’re now into the “Cabo Verde” portion of the Hurricane season where the systems moving off the African coast become more frequent, and form some of the most powerful storms we see each year, which is scary considering what we just saw from Ida that didn’t have nearly as much time to develop.
In non-storm news:
US equity indices reached fresh record highs (again) Monday, and are on pace for a 7th consecutive month of gains, just in time for the seasonal tick up in volatility.
Following up on a White House request, the FTC said that it is looking into whether or not retail station mergers and acquisitions is creating illegal activity in the way gasoline prices are set. It’s hard to say what, if any, changes this may bring about in the industry, but it certainly seems like it could slow down the rapid consolidation of retail station owners we’ve seen over the past several years.
The Dallas FED’s Texas Manufacturing Survey showed another month of expansion, but continued to highlight labor shortages and supply chain delays as major hurdles to continued growth.
Speaking of which, Bloomberg provides today’s interesting read: The race to recruit women to help fill the labor gap in the trucking industry.
Click here to download a PDF of today's TACenergy Market Talk.
Latest Posts
Energy Prices Fluctuate: Chinese Imports Surge, Saudi Arabia Cuts Output and Buys Golf
Week 23 - US DOE Inventory Recap
Energy Prices Retreat, Global Demand Concerns Loom
Crude Oil Futures Are Leading The Energy Complex Higher This Morning After The Sunday’s OPEC+ Meeting
Social Media
News & Views
View AllEnergy 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.