Pause Continues As Markets See Small Losses
The pause continues as energy and equity markets see small losses for a second straight day following a strong rally. The pullback is minor so far, and has not yet threatened the upward sloping trend-lines in either asset class.
There’s little in the way of news driving markets this morning, and considering the demand concerns growing along with new shutdown orders, it’s fairly remarkable that we haven’t seen more of a pullback – particularly in gasoline prices.
RIN prices continue to rally even as crop prices move sideways, suggesting the market continues to bet on the regime change in Washington being more favorable to renewables than refiners. The extra cost associated with the surge in RIN prices for the refiners who don’t have their own renewables to blend could be the breaking point for some plants that have been barely hanging on through the pandemic. There have not been any new refinery closure/conversion announcements yet this week, but we still have three days to go.
A federal court ruling threw out a lawsuit against Colonial pipeline and its subsidiary for blending butane into gasoline along its system, because the shipper is receiving the quality of gasoline it was promised at the destination. While that decision flew under the radar last week – which is just the way I’m sure most pipeline operators would prefer it – it is a big win for pipeline systems that supplement their income via blending operations, and a big loss for traditional blenders that are losing their ability to do so.
More details are emerging in the corruption and bribery case that ended with Vitol agreeing to pay a $160 million fine to regulators in the U.S. and Brazil. The Bloomberg article suggests Glencore and Trafigura are currently under investigation as well for similar allegations.
Meanwhile, the CME group has launched trading in its California Water Futures contract that offers the ability to hedge (or speculate) on the price of water in the largest (and one of the most drought-prone) U.S. markets.
Click here to download a PDF of today's TACenergy Market Talk.
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Energy 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.