New Lockdowns Have Markets On Edge

Market TalkMonday, Oct 26 2020
Market Talk Updates - Social Header

Fear is in the driver’s seat to start the week as energy and equity markets face an early wave of selling. Rising COVID case counts and new lockdowns have markets on edge, and a lack of stimulus plan progress has many concerned that this could be a long and painful winter, and so far are keeping attention away from the fact that there’s yet another hurricane heading towards refining country.


Remember that system in the Caribbean that was given 20% odds of developing last week?  It’s now Tropical Storm Zeta, and is expected to become a hurricane heading towards (you guessed it) Louisiana later this week. The storm is on an eerily similar path to Delta’s earlier forecasts two weeks ago with the models taking it over the Yucatan, then on towards New Orleans with a landfall on the U.S. coast late Wednesday or early Thursday. 

Will Zeta be the storm that ends New Orleans lucky streak? Already a handful of storms including Marco, Laura, Sally, and Delta were forecast to hit the big easy at some point, only to shift and make landfall on other parts of the Gulf Coast. The Lake Charles region has had the opposite luck, and although it’s currently out of the forecast cone, will no doubt keep a wary eye on this storm as well. There’s been a pattern that the early models underestimate how strong these storms will become as they move over open water. At this point Zeta is only predicted to reach Category 1 status, but is currently traversing the warm waters that saw Delta spike to Category 4 status in one day. Expect Gulf of Mexico rigs to be shut as a precaution, and if the storm stays on its current path, there’s a good chance the NOLA are refiners may start idling units as well to minimize potential damage.

So far the storm threat seems to have had little impact on energy futures, although RBOB gasoline is showing some resistance to the early sell-off that could be thanks to the storm risk.  Most contracts are trading at three week lows, and threatening a technical breakdown that could finally end the sideways trading pattern that’s held since June and push products back below the $1 mark. West Coast cash markets are bucking the weak trend in futures however, with reported refinery issues spurring diesel basis values to six month highs. 

The latest big deal: Cenovus agreed to acquire Husky Energy as the two Canadian oil producers and refiners sought a merger to survive the COVID Crisis. You may not recognize Cenovus as a U.S. refiner, as they’re a JV partner with P66 in the Wood River, IL and Borger, TX plants, and will now also be involved with Husky’s Lima, OH and Toledo (JV w/ BP) operations. No word yet on how Husky’s marketing and supply office in Columbus, OH will be impacted, although job cuts at some level are expected to be part of the deal based on the dreaded term “Synergies” used in the announcement.

Baker Hughes reported six more oil rigs were put to work last week, marking the fifth straight week of increases in the U.S. drilling rig count. Although the uptick in activity is certainly a small amount of much needed good news for the beleaguered industry, keep in mind the total rig count is still less than 25% of where it was one year ago. 

Click here to download a PDF of today's TACenergy Market Talk.

TACenergy MarketTalk 102620

News & Views

View All
Pivotal Week For Price Action
Market TalkThursday, Feb 29 2024

It's Another Mixed Start For Energy Futures This Morning After Refined Products Saw Some Heavy Selling Wednesday

It's another mixed start for energy futures this morning after refined products saw some heavy selling Wednesday. Both gasoline and diesel prices dropped 7.5-8.5 cents yesterday despite a rather mundane inventory report. The larger-than-expected build in crude oil inventories (+4.2 million barrels) was the only headline value of note, netting WTI futures a paltry 6-cent per barrel gain on the day.

The energy markets seem to be holding their breath for this morning’s release of the Personal Consumption Expenditures (PCE) data from the Bureau of Economic Analysis (BEA). The price index is the Fed’s preferred inflation monitor and has the potential to impact how the central bank moves forward with interest rates.

Nationwide refinery runs are still below their 5-year average with utilization across all PADDs well below 90%. While PADD 3 production crossed its 5-year average, it’s important to note that measure includes the “Snovid” shutdown of 2021 and throughput is still below the previous two years with utilization at 81%.

We will have to wait until next week to see if the FCC and SRU shutdowns at Flint Hills’ Corpus Christi refinery will have a material impact on the regions refining totals. Detail on the filing can be found on the Texas Commission on Environmental Quality website.

Update: the PCE data shows a decrease in US inflation to 2.4%, increasing the likelihood of a rate cut later this year. Energy futures continue drifting, unfazed.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.

Pivotal Week For Price Action
Pivotal Week For Price Action
Market TalkWednesday, Feb 28 2024

It’s Red Across The Board For Energy Prices So Far This Morning With The ‘Big Three’ Contracts All Trading Lower To Start The Day

It’s red across the board for energy prices so far this morning with the ‘big three’ contracts (RBOB, HO, WTI) all trading lower to start the day. Headlines are pointing to the rise in crude oil inventories as the reason for this morning’s pullback, but refined product futures are leading the way lower, each trading down 1% so far, while the crude oil benchmark is only down around .3%.

The American Petroleum Institute published their national inventory figures yesterday afternoon, estimating an 8+ million-barrel build in crude oil inventory across the country. Gasoline and diesel stocks are estimated to have dropped by 3.2 and .5 million barrels last week, respectively. The official report from the Department of Energy is due out at its regular time this morning (9:30 CST).

OPEC’n’friends are rumored to be considering extending their voluntary production cuts into Q2 of this year in an effort to buoy market prices. These output reductions, reaching back to late 2022, are aimed at paring back global supply by about 2.2 million barrels per day and maintaining a price floor. On the flip side, knowledge of the suspended-yet-available production capacity and record US output is keeping a lid on prices.

How long can they keep it up? While the cartel’s de facto leader (Saudi Arabia) may be financially robust enough to sustain itself through reduced output indefinitely, that isn’t the case for other member countries. Late last year Angola announced it will be leaving OPEC, freeing itself to produce and market its oil as it wishes. This marks the fourth membership suspension over the past decade (Indonesia 2016, Qatar 2019, Ecuador 2020).

The spot price for Henry Hub natural gas hit a record low, exchanging hands for an average of $1.50 per MMBtu yesterday. A rise in production over the course of 2023 and above average temperatures this winter have pressured the benchmark to a price not seen in its 27-year history, much to Russia’s chagrin.

Click here to download a PDF of today's TACenergy Market Talk.