Petroleum Futures Selling Off To Begin Thursday’s Session
After 2 strong days of buying, petroleum futures are selling off to begin Thursday’s session following cautionary demand estimates from the EIA, IEA and OPEC in their most recent reports.
Several waterborne terminals along the East Coast have already shut as a precaution ahead of Florence’s landfall (believe it or not those big tanks at petroleum terminals can float or blow away so they try to shut down lifting with ample product to protect the integrity of the shell) and many inland terminals in the storm’s path are planning to shut down this afternoon. So far the pipelines continue to operate on a relatively normal schedule. If they can continue operating through the storm, it seems Florence is likely to have a bigger impact on petroleum demand, than it will on supply.
The picture below from the National Hurricane center shows storms named Florence, Helene, Isaac and Joyce, along with the disturbance known as Invest 95L heading for the Texas coast. That disturbance was given a 70% chance of developing Wednesday afternoon, but only a 50% chance now, but is still expected to bring more heavy rain to Corpus Christi and perhaps Houston which are already facing flash flooding. Isaac will need to be watched next week as it could still turn north into the Gulf of Mexico, while Helene and Joyce look like they’ll stay out to sea.
OPEC reported an increase in the cartel’s oil output last month, with gains from Libya, Iraq, Nigeria and Saudi Arabia offsetting declines from Iran and Venezuela. The cartel’s monthly oil market report also increased its global oil supply estimates for 2019 slightly, while decreasing its demand estimates, citing concerns over what the trade tirades may do to economic activity.
The IEA cited similar concerns about trade in its monthly oil market report, but held their demand estimates from their last report.
The IEA also noted that the world just set a record in August with global oil production surpassing 100 million barrels/day.
The EIA reported a sharp drop in total US Petroleum demand last week, with the diesel demand estimate reaching its lowest weekly level in more than 18 months. While 1 data point does not make a trend – especially with the fickle nature of the EIA’s weekly estimates – the sharp drop off in diesel demand could be an early warning sign that the US Economy could be slowing down.
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Charts from the DOE’s weekly status report
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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.
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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.