Petroleum Futures Shrug Off Another Attempted Selloff

Petroleum futures shrugged off another attempted selloff Monday, continuing the July sideways trading pattern as uncertainty seems to be taking some of the risk appetite out of this asset class.
Volatility has been declining steadily for both energy and equity markets over the past few months, and the correlation between the two remains elevated. This suggests that any one of the major geopolitical issues happening at the moment (COVID-19 case counts and reopening plans, a new trillion dollar stimulus bill struggling to make it through Congress, and some less than neighborly theatrics from the world’s two super powers) have the potential to shock prices out of this range.
Unfortunately for refiners, this price (and demand) stagnation in July aren’t improving their margin situation, and the forward look remains bleak for many. Total announced yesterday it was selling its UK plant, and there are unconfirmed reports that another U.S. plant – this one along the Gulf Coast - is planning to idle its facility in the next few weeks, adding to a growing list of shutdowns.
Not everyone is looking to exit the business however, as Meridian Energy Group cleared a major regulatory hurdle to build a new refinery in North Dakota to attempt to take advantage of the U.S. glut of light sweet crude from shale plays. Although several reports suggest this plant would be the first built in the U.S. since the 1970's, they would be forgiven for forgetting the small refinery built in North Dakota in 2013 that was sold at a loss less than three years later.
Meanwhile, there have been a rash of operational issues at Gulf Coast refineries reported in the past few days, with some indication that power and other weather-related issues from Hurricane Hanna’s remnants may have been a contributing factor even though that storm made landfall hundreds of miles away. So far USGC basis markets have not reacted much, suggesting that the lack of demand continues to act as a buffer to any supply shock.
The Dallas Fed released its Texas Manufacturing survey for July, showing that the state continues to recover rapidly from the COVID shutdown. That said, comments that the recent resurgence point to the recovery taking longer than previously estimated, and 3/4 of respondents indicating that revenues are below normal July levels, making it clear there’s still a long way to go.
Click here to download a PDF of today's TACenergy Market Talk.
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Week 48 - US DOE Inventory Recap

The API Reported Gasoline Inventories Dropped By 898,000 Barrels Last Week
Gasoline and oil prices are attempting to rally for a 2nd straight day, a day ahead of the delayed OPEC meeting, while diesel prices are slipping back into the red following Tuesday’s strong showing.
The API reported gasoline inventories dropped by 898,000 barrels last week, crude inventories declined by 817,000 barrels while distillates saw an increase of 2.8 million barrels. Those inventory stats help explain the early increases for RBOB and WTI while ULSD is trading lower. The DOE’s weekly report is due out at its normal time this morning.
A severe storm on the Black Sea is disrupting roughly 2% of the world’s daily oil output and is getting some credit for the bounce in futures, although early reports suggest that this will be a short-lived event.
Chevron reported that its Richmond CA refinery was back online after a power outage Monday night. San Francisco spot diesel basis values rallied more than a dime Tuesday after a big drop on Monday following the news of that refinery being knocked offline.
Just a few days after Scotland’s only refinery announced it would close in 2025, Exxon touted its newest refinery expansion project in the UK Tuesday, with a video detailing how it was ramping up diesel production to reduce imports and possibly allow for SAF production down the road at its Fawley facility.
Ethanol prices continue to slump this week, reaching a 2-year low despite the bounce in gasoline prices as corn values dropped to a 3-year low, and the White House appears to be delaying efforts to shift to E15 in an election year.
Click here to download a PDF of today's TACenergy Market Talk.

Values For Space On Colonial’s Main Gasoline Line Continue To Drop This Week
The petroleum complex continues to search for a price floor with relatively quiet price action this week suggesting some traders are going to wait and see what OPEC and Friends can decide on at their meeting Thursday.
Values for space on Colonial’s main gasoline line continue to drop this week, with trades below 10 cents/gallon after reaching a high north of 18-cents earlier in the month. Softer gasoline prices in New York seems to be driving the slide as the 2 regional refiners who had been down for extended maintenance both return to service. Diesel linespace values continue to hold north of 17-cents/gallon as East Coast stocks are holding at the low end of their seasonal range while Gulf Coast inventories are holding at average levels.
Reversal coming? Yesterday we saw basis values for San Francisco spot diesel plummet to the lowest levels of the year, but then overnight the Chevron refinery in Richmond was forced to shut several units due to a power outage which could cause those differentials to quickly find a bid if the supplier is forced to become a buyer to replace that output.
Money managers continued to reduce the net length held in crude oil contracts, with both Brent and WTI seeing long liquidation and new short positions added last week. Perhaps most notable from the weekly COT report data is that funds are continuing their counter-seasonal bets on higher gasoline prices. The net length held by large speculators for RBOB is now at its highest level since Labor Day, at a time of year when prices tend to drop due to seasonal demand weakness.
Click here to download a PDF of today's TACenergy Market Talk.