Open Or Closed?
Open or closed? That seems to be the debate for energy and equity markets as June trading winds down and we approach what is typically one of the busiest travel weeks of the year.
So far this morning bullish sentiment is outweighing limited rollbacks in US states reopening plans, after that news sparked a heavy selloff across asset classes last week. In the energy space, once again gasoline prices are the most volatile as RBOB futures rallied nearly six cents off of its overnight lows to manage small gains this morning after dropping 15 cents last week.
Baker Hughes reported a decline of “only” one oil rig last week, bringing the total U.S. count to a fresh 11 year low for oil, and the latest in a streak of record lows for combined oil and
gas drilling. The bright side of the report was the weekly drop is the smallest since the COVID-19 collapse in rig counts began, and with prices now hovering close to $40, the positive second derivative in rig counts suggests the end of cut backs may be near.
If the worst days are behind U.S. energy producers, it was too late for Chesapeake, the infamous pioneering shale company which filed for bankruptcy over the weekend.
Money managers continue to seem unenthusiastic about energy trading with only minor changes in positions over the past several weeks, while open interest for WTI dropped to its lowest since February. The drop in open interest is likely due to a combination of factors including volatility returning to normal levels, new oil contracts competing with WTI for market share, and the end of the super contango storage trades.
Speaking of storage: The EIA this morning took a closer look at record high U.S. oil inventories, in reference to reported tank capacity. Although the country has more crude oil on hand than ever, that’s still just 62 percent of working capacity. The NYMEX delivery hub in Cushing, OK, reached 83 percent of capacity in April, but has dropped to 58 percent currently. The report also highlights how both storage capacity and inventories have risen dramatically in the Gulf Coast region over the past year.
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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.